Although Malaysia’s export contraction narrowed substantially in May, economists on Wednesday projected weak export growth momentum ahead.
UOB Global Economics and Markets Research said in a note that the unfavorable base effects and lingering downside risks including subdued global demand, and easing commodity prices continue to point to weak export growth momentum for the remaining months of the year for Malaysia.
The agency also said demand from advanced economies particularly the United States and Europe slowed due to tighter monetary conditions, leading to a downcycle in the semiconductor sector, which is one of main export products for Malaysia.
Hence, it reiterated its projection for export contraction of 7 percent for Malaysia for the entire year, which infers a persistent contraction in exports in most months for the remainder of the year.
Affin Hwang Investment Bank said in a note that Malaysia’s export outlook remains challenging amid multiple headwinds.
The agency said the ongoing interest rate hikes, rising banking stress, and persistent inflationary pressures are expected to weigh on global economic growth.
Overall, the research house is maintaining its projection that Malaysia’s real gross domestic product (GDP) growth will likely slow to 3.7 percent in 2023 from 8.7 percent in 2022.
Despite better-than-expected export growth in May, Kenanga Research maintained a cautious outlook for Malaysia’s exports as regaining positive growth in the coming months will be rather challenging.
This is largely due to the high base effect, especially in the third quarter, and expectations of a weaker global trade outlook and lower commodity prices amid the impact of monetary policy tightening in advanced economies, according to the research house.
It also maintained Malaysia’s 2023 GDP growth forecast at 4.7 percent for now despite expectations of a slowing external trade trend in the near term as it expects domestic demand to offset the impact of a slowdown in the commodity-related and manufacturing export-oriented sectors.
Maybank Investment Bank said that a slower global economy, commodity price reversals and base effect are drags on Malaysia’s external trade.
It also said commodity export prices have softened year-to-date, amplifying the kicking in of base effect, and expects Malaysia’s full-year exports to decline by 2 percent.