China the only bright spot in Malaysia’s exports

PETALING JAYA: China is the only major trading partner that offers a bright spot for Malaysia’s exports at a time when a recovery in trade seems far from sight, according to Socio-economic Research Centre (SERC) executive director Lee Heng Guie.

China was the first country to reopen its economy in April and has since begun to see a recovery in domestic activities.

While Malaysia’s exports to China grew moderately by 4.5% in May, Lee pointed out that exports to key markets such as the United States, Japan, Europe and Asean contracted sharply in the same month.

Between Jan-may 2020, the country’s exports contracted by 9.7% year-on-year (y-o-y).

“We expect the contraction in exports to continue throughout the year, with the second quarter registering the worst magnitude as global demand remains depressed by measures to curb the ongoing coronavirus outbreak.

“The magnitude of declines will narrow markedly going into the second half of 2020, thanks to some improvement in global demand following the lifting of the great lockdown in major advanced economies since May,” he said during a virtual briefing yesterday.

As for the full-year 2020, Lee forecast exports to contract by 11.2% as compared to a decline of 1.7% in 2019.

“However, import compression this year will help to keep the current account in surplus, although it is expected to narrow further to 1% - 2% of gross domestic product in 2020,” he added.

On the country’s recovery post reopening the economy, Lee said channel checks by SERC showed that most businesses have started operations.

In the manufacturing sector, most businesses have resumed operations, with capacity utilisation rates currently at 70% to 80%.

About 15 million or 98.8% of employees have returned to work compared with 10.2 million or 67.2% as of May 17.

As a result, consumer sentiment also seemed to be picking up as footfall in major shopping malls has reached 50% to 70%.

Meanwhile, sales are up to 40% compared with the pre-movement control order period.

“However, many businesses, especially micro, small and medium enterprises are still struggling not only to cope withslow demand, supply disruptions, cash flow problem and high operating costs but also structural challenges due to consumer protocols, social distancing, standard operating procedures and intense competition with online businesses.

“Post Covid-19 economic recovery is likely to be gradual one,” he said.

Hence, the domestic labour market would also take time to recover before the jobless rate stabilises to the pre-pandemic levels.

According to Lee’s forecast, the national unemployment rate is expected to reach 5.5% to 6.5% in the second and third quarters of this year.

For context, Malaysia’s jobless rate spiked to 5% in April as the number of unemployed persons surged to 778,800 from 517,000 as at end-2019.

“Severe hit to the labour market would dent consumer spending.

“Overall, SERC expects private consumption to slow to 1.5% in 2020. When Malaysians feel safer from the virus and have more secure incomes, they will start to spend,” he said.