Malaysian exports rise despite Covid-19, but will it last?

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While global trade has shrunk considerably following the outbreak of Covid-19, Malaysia has recently seen an unexpected rise in both its exports and trade surplus.

Official trade data revealed that exports in June rose by 8.8% year-on-year (y-o-y) to RM82.9bn ($19.5bn). This surprise increase came on the back of a 25.5% contraction in May, while most economists had predicted a fall in exports of between 8-10% for the month.

The performance was driven by a 16% y-o-y increase in electrical and electronic shipments, which make up around one-third of total exports. Exports of machinery and appliances also grew by 29% y-o-y. Conversely, oil and gas exports were down 21%, reflecting lower global demand and a fall in oil prices.

Malaysia recorded a significant y-o-y expansion in shipments to major trading partners China (46.8%) and the US (27.6%).

As exports increased, imports fell by 5.6% y-o-y over the month, leaving the country with its largest trade surplus on record at RM20.9bn ($4.9bn) – some 98.7% higher than 12 months ago.

Despite this increase in export growth in June, exports for the second quarter were still 14.3% lower than the same period last year. Meanwhile, on a quarter-by-quarter basis, second quarter shipments were 11.9% lower than those in the January-March period.

Reasons for growth

In a statement accompanying the results, Mohd Uzir Mahidin, the chief statistician of the Department of Statistics Malaysia (DOSM), said the positive export growth reflected a broader recovery from the negative effects of the pandemic.

Elsewhere, Julia Goh and Loke Siew Ting, economists at United Overseas Bank Malaysia, wrote that the region-leading export performance could be attributed to a diversification of exports, the easing of supply-chain disruptions, the meeting of backlog orders and a release of pent-up demand.

Another key factor behind the increase in general economic activity was the relaxation of lockdown restrictions over the course of the month, which saw many businesses reopen and internal travel increase. 

Malaysia has successfully reduced the number of active cases from the peaks of March and April. As of July 29 Malaysia had recorded 8956 cases and 124 deaths - a substantially lower case count than neighbouring Singapore but higher than Thailand. 

The easing of restrictions was also accompanied by the release of a fourth economic stimulus package, valued at RM35bn ($8.2bn), on June 5. The package included wage subsidies for lower-income earners, as well as support for freelancers. In total, the government has released RM290bn ($68.3bn) in stimulus measures since the outbreak of the virus.

Lasting momentum?

While the export figures were a pleasant surprise for many in Malaysia, there has been some debate about whether the rebound constitutes the early signs of an economic recovery or merely a temporary blip.

Prakash Sakpal, an analyst from ING Asia, wrote that the gains made in trade were likely to be “transitory”, and that he expected the spike to be reversed in July. “While the second wave of Covid-19 cases will continue to weigh on exports, the base effect is poised to become unfavourable. This is likely to cause a sharply negative turn in export growth. The same can be expected for imports, as these largely feed into processing for imports, while domestic demand continues to take a beating from the virus.”

In a more upbeat assessment, Goh and Loke expect the June performance to have a positive impact on trade and growth figures moving forward.

“Our current estimate for [second quarter] GDP is -12% y-o-y but may be subjected to revisions upon release of June's industrial production, and wholesale and retail trade data,” they wrote.

Furthermore, the expected recovery of oil exports as a result of the OPEC+ agreement to ease import restrictions from August led the pair to revise annual export figures from -10% to -3.5%.

This sentiment aligns somewhat with the assessment of the DOSM, which expects external trade, along with an increase in manufacturing and production, to support a gradual increase in the economy over the coming months.

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