KUALA LUMPUR, May 22 (Xinhua) -- Economists have revised down Malaysia's full-year export forecasts after the steeper-than-expected export contraction in April.
UOB Global Economics and Market Research said in a note on Friday that the year-to-date export contraction of 2.6 percent in Malaysia suggests that its existing 2023 full-year export growth projection of 1.5 percent is no longer valid.
In view of persistent threats to the export outlook and negative base effects becoming more apparent in coming months, the research house trimmed Malaysia's 2023 full-year export growth projection to -7 percent.
In comparison, Malaysia's exports surged 25 percent year-on-year in 2022. The Central Bank of Malaysia projected Malaysia's export to grow 1.5 percent in 2023.
According to the UOB, key downside risks for Malaysia's exports include geopolitical tensions, potential financial instability stemming from monetary policy tightening, a pronounced growth slowdown in advanced economies.
"In sum, we think exports may continue to stagnate as the growth outlook across the world is poised to slow further entering the second half," it said.
Malaysia's exports declined for a second straight month and most sharply since October 2022 by 17.4 percent year-on-year in April, as a result of a shorter working month, high base effects a year earlier, lower commodity price earnings, and dimmer global growth prospects.
The reading came in worse than the UOB estimate of -2.5 percent.
The steeper-than-expected export contraction last month was weighed by all three economic sectors and almost all products, except for the refined petroleum products.
Meanwhile, Kenanga Research said in a note on May 22 that given the weaker-than-expected trade performance in April and subdued year-to-date performance, it downgraded Malaysia's 2023 export forecast to -4.2 percent from 5.8 percent as there is a high probability that exports could contract further in the near term.
This is mainly due to the high base recorded last year, coupled with relatively lower commodity prices and the normalization of economic activities as well as tighter financial conditions brought by the aggressive monetary policy tightening in advanced economies to tame inflation, said the research house.
However, at this juncture, Kenanga maintained Malaysia's 2023 gross domestic product (GDP) growth forecast unchanged at 4.7 percent despite a slowing external trade trend in the first month of the second quarter.
This is largely due to the expectation that domestic demand fueled by tourism recovery, steady labor market conditions and further expansion in the services sector will mitigate the slack in the commodity-related and manufacturing export-oriented sectors, according to Kenanga.
However, this will also be contingent on the pace of economic recovery from China and backed by the progress of federal government spending on infrastructure projects and higher implementation rate of foreign direct investments (FDIs), it added.
Taking into account the recent weakness in trade numbers in April, MIDF Research on May 19 has also downgraded Malaysia's full-year growth forecast for exports to -3.4 percent and imports to -1.9 percent.
"While China's recovery can be a boost to international trade activity this year, we view weak global demand (particularly for manufactured goods) in addition to limited upward pressures on prices and thus the high base would translate into slower external trade performance this year," the research house said in a note.
In fact, it expects lower commodity prices will continue to affect resource-based exports in the next few months.
It also said trade outlook could weaken further if global inflation remains high, central banks continue to tighten monetary policy and geopolitical risk deteriorates.
Despite the weakness in external trade, it expects Malaysia's economic growth will remain positive, driven by sustained growth in domestic demand in view of the positive outlook for consumer spending and job market.
The Affin Hwang Investment Bank said on May 19 that in the near term, it believes Malaysia's external demand will remain uncertain due to lower demand from the global market.
It believes that lower demand from advanced economies will continue to drag on Malaysia's exports.
However, it said higher exports to China, which is expected to account for a quarter of total exports in the region, will provide some support to intra-regional trade.
It also expects global semiconductor demand to remain weak due to the imbalance in supply and demand, which will weigh on Malaysia's overall trade performance, given the importance of the electrical and electronics (E&E) industry to the country's total exports.
"We are maintaining our projection that Malaysia's real GDP growth will likely slow to 3.7 percent in 2023, from 8.7 percent in 2022," it said. ■