M’sia to return to trade surplus soon

Country’s April trade deficit worst since 1984

PETALING JAYA: Malaysia’s trade balance for April 2020 suffered its largest deficit since 1984 but could return to a surplus for May, according to economists.

Malaysia is projected to return to a surplus in the coming months even as the country’s exports are forecast to remain weak ahead.

Speaking to Starbiz, MIDF Research economist Mazlina Abdul Rahman said April’s trade deficit was the largest deficit on record since it was first registered in 1984.

The deficit was due to the softer fall in imports compared to exports, on a year-onyear (y-o-y) basis.

Imports contracted by 8% y-o-y in April 2020, as compared to the 23.8% y-o-y decline in exports, mainly because of lumpy purchases of transport equipment, particularly floating structures pertaining to Petronas’ second floating liquefied natural gas (PFLNG2) project.

Imports of transport equipment soared by 232.7% y-o-y in April, as compared to a decline of 44.2% y-o-y in March.

“As we believe this is just a one-time purchase, a continuous trade deficit is unlikely for upcoming months.

“Nevertheless, both exports and imports performance will remain weak in upcoming months albeit at better notes compared to what we have seen in April 20,” said Mazlina.

Meanwhile, Socio-economic Research Centre (SERC) executive director Lee Heng Guie does not expect the trade deficit to sustain.

“This is due to import compression as a sharp pullback in consumption and investment will help to keep the overall trade balance in surplus, albeit narrower,” he said.

The Covid-19 pandemic, which has caused major disruptions to the global supply chain, has dragged Malaysia to record a trade deficit of Rm3.5bil in April 2020, after 269 consecutive months of surplus.

The last trade deficit recorded by the country was in October 1997 amounted to RM151.3mil. That was more than 22 years ago.

According to the International Trade and Industry Ministry (Miti), Malaysia’s exports and imports in April were valued at RM64.92bil and RM68.42bil respectively.

For perspective, the drop in April’s exports was the hardest fall since Sept 2009.

Despite the hit felt by overall exports, some products have recorded strong increases in their sales to other countries in April.

Exports of iron and steel products, transport equipment as well as rubber products posted a double-digit growth of 21.5%, 21.8% and 11.7% respectively.

Looking at geographical markets, Malaysia’s exports to all nine Asean countries fell in the range of 2.3% to 69.2%.

Overall, Malaysia’s trade with Asean in April 2020 was valued at RM30.4bil, accounting for 22.8% share of the country’s total trade.

Miti said Malaysia’s trade with China (19.7% of total trade) dipped by 1.5% y-o-y to Rm26.25bil. This was despite a 4.2% y-o-y rebound in exports to China.

Malaysia’s trade with the United States (8% of total trade) fell by 19.6% y-o-y to RM10.67bil and the trade with the European Union (7.1% of total trade) contracted by 33.3% y-o-y to RM9.42bil.

Meanwhile, Malaysia’s trade with Japan (6.4% of total trade) decreased by 22.2% y-o-y to RM8.59bil.

MITI minister Datuk Seri Mohamed Azmin Ali said in a statement yesterday that the declines in both exports and imports are expected, given that most countries around the world were under some form of lockdown due to Covid-19.

“Malaysia’s exports are expected to improve in the coming months as the government allowed more industries to resume operations and at full operating capacity since May 4..

Similarly, companies in other countries are also ramping up their business operations.

“This will boost trade activities between Malaysia and other countries”, he added.

However, SERC’S Lee told Starbiz he expects continued declines in exports ranging between -8% to -19.1% in the months ahead.

This was because of the impact of the lockdown worldwide, especially in April-may, which had disrupted consumer demand and supply chains.

“Malaysia’s major trading partners are still struggling with economic downturn and high layoffs that cut down spending.

“We expect exports to decline by 11.2% in 2020 compared to a smaller decline of 1.7% in 2019,” Lee said.

However, he pointed out that the electronics and electrical sector may offer some silver lining to Malaysia’s exports performance, moving forward.

This is thanks to the need for medical equipment for both industrial and consumer needs, the increased demand for computer upgrades and the need for 5G.

MIDF Research’s Mazlina also expects exports to decline this year by 8.3%y-o-y.

Moving ahead, with exports outlook looking subdued, concerns have risen on the ringgit’s potential performance.

Weaker exports and the narrowing trade surplus will mean lesser demand for the ringgit, and this in turn, may lead to the depreciation of the local currency.

On the other hand, MIDF Research’s Mazlina said that a weaker ringgit could stimulate exports and make imports more expensive.

“However, in the current situation, the relationship might not hold as trade flows are being influenced by various factors, particularly the sentiment with Covid-19 and the recent re-escalation of the Us-china trade tensions.

“Any impact to the ringgit will be temporary.

“We foresee the ringgit to be at RM4.25 against the US dollar for the year end.

“Factors including the movement of global oil prices, US presidential election and domestic political stability will influence the performance of the ringgit in the long run,” she added.

Meanwhile, SERC’S Lee said that if there is a sustained net outflow of portfolio investment in both equity and debt markets, the ringgit will be impacted.

“We expect the ringgit to value between RM4.30-4.50 against the US dollar by end2020,” he said.