MARKET DEVELOPMENT
No Rebound Seen Next Year in Weak Malaysian Exports to China
No Rebound Seen Next Year in Weak Malaysian Exports to China
04/12/2015 (The Star) - A rebound in Malaysian exports to China is unlikely next year, as global demand outside of the United States remains uncertain.
Moody’s Analytics associate economist Jack Chambers said weaker China demand had weighed on Malaysia’s exports performance and this had only been partially offset by the weak ringgit.
“The slip in China’s growth continues to dampen Malaysia’s export performance,” he said in a note on Wednesday in anticipation of Malaysia’s October external trade data to be released today. Chambers expects the trade surplus to narrow to RM9.5bil compared with RM9.7bil in September.
“This decline will be driven by the slowing China economy, a major source of export demand for Malaysia. Improved export performance related to the depreciating ringgit is only partially picking up the slack,” he said.
Economists expect a median 8.4% rise year-on-year (y-o-y) for Malaysia’s October exports from 8.8% in September, and imports to contract 3.2% from the 9.6% gain in September. They expect the trade balance to be RM9bil.
China has posted lower growth since 2012, as its economy restructures and moves away from a reliance on exports and foreign direct investment to domestic consumption. The Chinese economy posted a 6.9% y-o-y growth for the third quarter from 7% in the second quarter.
Yesterday, the Asian Development Bank raised this year’s China growth forecast to 6.9%, marginally higher than 6.8% previously but maintained next year’s growth forecast at 6.7% on resilient private consumption and services.
China’s shift to domestic consumption-driven economy had led to concerns that manufacturers may not be ready for changing trends among China consumers. Four-fifths of Malaysian shipments to China involved intermediate inputs such as machinery as well as electrical and electronic (E&E) components, with the remainder comprising mostly commodities.
The slowdown in global growth had affected China’s exports, especially its developed-market export destinations, and had also affected its supply-chain trading partners, of which Malaysia continues to be the largest in Asean.
RHB Research Institute Sdn Bhd chief Asean economist Peck Boon Soon said income growth in China would lead to consumers wanting higher value-added goods such as cars and tech gadgets. He told StarBiz that a number of the local E&E manufacturers had switched to products such as smartphones and tablets.
Peck said they had done well partly due to the weaker ringgit compared with their Singaporean and Thai competitors. “These manufacturers are doing the right thing, but the change as a share of the economy is not widespread,” he said, pointing out that much of what Malaysia exported to China still did not cater directly to its consumers.
Last year, two-way trade between Malaysia and China reached RM207.85bil. E&E exports to China rose 7% to RM43.08bil or 46.6% of exports to the country. Exports of manufactured goods accounted for just over three-quarters of total exports or RM587.25bil last year, with E&E exports making up one-third of total exports.
Economists have said before that local manufacturers risked losing market share in exports by not moving up the value chain. A reliance on cheap unskilled and semi-skilled foreign labour has been a disincentive to producing value-added goods.
Alliance Research chief economist Manokaran Mottain said manufacturers remained cost-conscious, hence the reliance on foreign labour.
A decline in education standards has also constrained meaningful changes in the manufacturing sector.
“There’s a mismatch of skills and education in the supply of the skilled labour and talent needed for the economy,” he said.
Chambers said falling commodity prices had also contributed to the shrinking trade surplus.
“Malaysia is among the largest global exporters of palm oil, which has endured a 20% price fall in the last year.
“Likewise, weak oil prices have put downward pressure on the value of Malaysia’s crude- and petroleum-based exports,” he said.
According to the Malaysia External Trade Development Corp, the slowdown in manufacturing activities in China last year caused other exports to decline such as manufactures of metal and crude natural rubber. Palm oil exports dropped 16.2% to RM7.68bil.
Moody’s Analytics associate economist Jack Chambers said weaker China demand had weighed on Malaysia’s exports performance and this had only been partially offset by the weak ringgit.
“The slip in China’s growth continues to dampen Malaysia’s export performance,” he said in a note on Wednesday in anticipation of Malaysia’s October external trade data to be released today. Chambers expects the trade surplus to narrow to RM9.5bil compared with RM9.7bil in September.
“This decline will be driven by the slowing China economy, a major source of export demand for Malaysia. Improved export performance related to the depreciating ringgit is only partially picking up the slack,” he said.
Economists expect a median 8.4% rise year-on-year (y-o-y) for Malaysia’s October exports from 8.8% in September, and imports to contract 3.2% from the 9.6% gain in September. They expect the trade balance to be RM9bil.
China has posted lower growth since 2012, as its economy restructures and moves away from a reliance on exports and foreign direct investment to domestic consumption. The Chinese economy posted a 6.9% y-o-y growth for the third quarter from 7% in the second quarter.
Yesterday, the Asian Development Bank raised this year’s China growth forecast to 6.9%, marginally higher than 6.8% previously but maintained next year’s growth forecast at 6.7% on resilient private consumption and services.
China’s shift to domestic consumption-driven economy had led to concerns that manufacturers may not be ready for changing trends among China consumers. Four-fifths of Malaysian shipments to China involved intermediate inputs such as machinery as well as electrical and electronic (E&E) components, with the remainder comprising mostly commodities.
The slowdown in global growth had affected China’s exports, especially its developed-market export destinations, and had also affected its supply-chain trading partners, of which Malaysia continues to be the largest in Asean.
RHB Research Institute Sdn Bhd chief Asean economist Peck Boon Soon said income growth in China would lead to consumers wanting higher value-added goods such as cars and tech gadgets. He told StarBiz that a number of the local E&E manufacturers had switched to products such as smartphones and tablets.
Peck said they had done well partly due to the weaker ringgit compared with their Singaporean and Thai competitors. “These manufacturers are doing the right thing, but the change as a share of the economy is not widespread,” he said, pointing out that much of what Malaysia exported to China still did not cater directly to its consumers.
Last year, two-way trade between Malaysia and China reached RM207.85bil. E&E exports to China rose 7% to RM43.08bil or 46.6% of exports to the country. Exports of manufactured goods accounted for just over three-quarters of total exports or RM587.25bil last year, with E&E exports making up one-third of total exports.
Economists have said before that local manufacturers risked losing market share in exports by not moving up the value chain. A reliance on cheap unskilled and semi-skilled foreign labour has been a disincentive to producing value-added goods.
Alliance Research chief economist Manokaran Mottain said manufacturers remained cost-conscious, hence the reliance on foreign labour.
A decline in education standards has also constrained meaningful changes in the manufacturing sector.
“There’s a mismatch of skills and education in the supply of the skilled labour and talent needed for the economy,” he said.
Chambers said falling commodity prices had also contributed to the shrinking trade surplus.
“Malaysia is among the largest global exporters of palm oil, which has endured a 20% price fall in the last year.
“Likewise, weak oil prices have put downward pressure on the value of Malaysia’s crude- and petroleum-based exports,” he said.
According to the Malaysia External Trade Development Corp, the slowdown in manufacturing activities in China last year caused other exports to decline such as manufactures of metal and crude natural rubber. Palm oil exports dropped 16.2% to RM7.68bil.