Updated: Jun 16, 2020
A mild improvement was seen in Malaysia’s first-quarter (1Q) trade performance, but economists say the outlook for the next two quarters is dim as a result of the movement control order (MCO).
Data released by the Department of Statistics Malaysia today showed exports and imports rising by 1.1% and 1.3% year-on-year during the first quarter of the year.
However, for the month of March, exports dropped to a four-month low, falling 4.7% from a year ago, on lower export volume across all three export sectors following the adverse impact of the Covid-19 outbreak and Malaysia’s imposition of the MCO.
IHS Markit’s latest Manufacturing Purchasing Managers' Index for Malaysia also affirmed this with the index plunging to a record low of 31.3 in April from 48.4 in March.
“The manufacturing sector came under heavy pressure following the implementation of restriction – both at home and in export markets – to contain the spread of the Covid-19 pandemic, which severely restricted demand and often meant goods producers operated well below full capacity,” UOB Malaysia senior economist Julia Goh said in a note.
Goh said a more modest global economic recovery post Covid-19 and emerging risks of localisation across the world will pose further downside risks to Malaysia’s export performance ahead.
“We maintain our 2020 full-year export contraction target at 10% for now,” she said.
MIDF also anticipated a weaker performance in the second quarter, and forecast both export and import growth to contract further in 2020 at -8.3% and –7.8% year-on-year respectively.
“While most of the Chinese factories resumed their operation in March, more countries are restricting movement of its people and even impose lockdowns as Covid-19 flares globally. The pandemic is spreading fast in key trading partners such as the US and Europe, forcing businesses to shut down or limit operations. Hence, export performance is expected to deteriorate in 2Q20,” it said in a report.
It added that exports of electrical and electronics products, which hold about 34% share of total exports, continued its negative streak for the eighth month in March, and prospects remain gloomy for upcoming months as Covid-19 has dampened demand.
Furthermore, uncertainties over global trade flows will remain even when Covid-19 is contained due to the fact that existing tariffs imposed between China and US are still largely in place, MIDF said.
“There is the US presidential election and protectionism possibly resurfacing during the election campaign. Besides that, the Green Deal by the EU (European Union) and the oil price war will also affect Malaysian exports,” said MIDF.
Source: The Edge Markets