Malaysia’s exports to slow in August amid sentiment

KUCHING: RAM Ratings expects Malaysia’s export growth to decelerate to 3.3 per cent in August as exports begin to slow down on the back of more cautious sentiment amid escalating trade tensions between the US and China.

On August 23, both the US and China imposed a second round of import tariffs with those by the US especially pertinent to Malaysia given the impact on the semiconductor sector.

“Electrical & electronic ( E& E) products constituted 36.7 per cent of Malaysia’s total exports in 2017. The risk to trade momentum was heightened further when the US imposed a third round of tariffs on Chinese imports valued at RM200 billion on September 24,” RAM said in its note yesterday.

Electrical & electronic (E&E) products constituted 36.7 per cent of Malaysia’s total exports in 2017. The risk to trade momentum was heightened further when the US imposed a third round of tariffs on Chinese imports valued at RM200 billion on September 24. RAM

“At 10 per cent initially, this rate is set to increase to 25 per cent in January 2019.”

While global trade will likely face some dampening on its momentum in the short run amid heightened tension between the US and China, RAM believed that producers in the region stand to gain from the demand diversion as firms in the economy rejig their supply chains down the line.

“For Malaysia, the biggest potential gain comes from the trade diversion effect of E&E which could boost overall export demand,” it added.

“Malaysiaisoneof thecountries that is highly competitive in terms of revealed comparative advantage (RCA) to benefit from the trade diversion from the US’s second round of tariffs on China, which places heavier focus on semiconductors.”

There is also further potential for E& E trade diversion for Malaysia in the third round of US-China tariffs on September 24, 2018, despite not being a main beneficiary of the overall basket of goods tariffed.

“Electronic components under both US and China’s set of tariffs, respectively, constitute 6.8 and 16.4 per cent of Malaysia’s overall exports, with correspondingly strong RCAs of 1.38 and 1.50,” highlighted Kristina Fong, RAM’s head of research.

“That said, Malaysia still faces stiff competition from other markets in the region such as Vietnam and the Philippines, which have higher RCAs for this group of products - which may dilute some of these potential gains.”