KUALA LUMPUR: A slowdown in exports during the first half of the year paints a worrying picture for Malaysia’s growth prospects, given the added prospect of further volatility and uncertainties arising from the recent United Kingdom’s referendum to leave the European Union or Brexit, say analysts.
PublicInvest Research (PIVB) said in a note that while export growth had been steady this year on a ringgit-translated basis, a different story emerges if the figures are put in US dollar-denominated terms.
Malaysia’s total exports averaged about US$50bil per quarter last year. However, the figure has tapered off to US$44bil during the first quarter of 2016 (1Q16).
Malaysia’s gross domestic product (GDP) moderated to 4.2% in 1Q16, or a sixth consecutive quarterly decrease in growth.
“There is a notable decline in amounts exported suggesting that even less is being sold, unit-wise, outside.
“We had initially anticipated gradual improvements in global macroeconomic conditions by the second half of this year, but this view now takes a backseat in light of current developments,” it said.
In light of the recent Brexit vote, global growth prospects are now less positive due to the economic fallout of a fractured Europe, the research house added.
Additionally, Malaysia’s exports to its four major destinations have seen marked reductions. The impact to trade with China is most evident due to the country’s own economic challenges.
However, PIVB said the chances of a twin deficit situation due to lacklustre commodity prices are still remote as it does not foresee any structural shifts in the interim.
“The country has gone through leaner commodity-related spells but had emerged relatively unscathed. “While numbers are unsurprisingly weak currently, we still see sufficient inertia in global trade keeping our trade balances on even keel though the recovery may now be slightly prolonged,” it explained.
In a separate note, Maybank IB Research said it is reviewing its full-year GDP target of 4.3% as the index of leading economic indicators points to further contraction in the GDP.
“The indicators lead the GDP growth by 2-3 months. It fell by 2.6% on a year-on-year basis in April, reflecting a decline in components that are both export oriented and domestic oriented. The data suggests a further slowing of real GDP growth during the second quarter.” it said.
According to Maybank, the impact of Brexit could see other countries switch to economic policies that trend towards anti-globalisation and inward-looking politics, which would be a substantial blow to the already fragile global economy and world trade.
