Malaysia starting to benefit from trade diversion amid US-China tariffs war?

PETALING JAYA: The surprise growth in Malaysia’s July exports could indicate that the country has started to feel the positive impact from trade diversion amid the escalation in the trade war between the United States and China, according to economists.

The market had expected a 2.5% contraction in exports, but it turned out to be a 1.7% expansion.

“We think July’s export performance shows further evidence of trade diversion amid higher exports of electrical & electronics (E&E) products and pick-up in exports to US and China,” said UOB Global Economics & Markets Research in its report today.

However, Inter-Pacific Securities Sdn Bhd head of research Pong Teng Siew is hesitant to attribute the export improvement to the trade diversion effect.

“We have to wait for a few months as it could a front-loading effect from the US ahead of upcoming tariffs implementation before it could be determined as a benefit from trade diversion,” he told SunBiz.

Pong noted that the trade figures suggested a possible resumption of the upward trend in exports from October last year. “Since October last year, Malaysia’s trade figures have been rather flat.”

UOB cautioned that slowing global demand and high base effects in second-half 2018 as a result of front-loading purchases ahead of the US tariff increase in January 2019 may offset any substantial gains in Malaysian exports.

“In sum, we continue to stay cautious about the outlook of Malaysia’s exports in 2H 2019. We maintain our 2019 full-year export growth forecast at 1.0%-1.5%,” it said.

MIDF Research also revised downwards the exports growth forecast to 1.7% in 2019.

“With faltering trade globally derive from rising protectionism and loss of momentum in some major economies, especially in Europe, we do not foresee a huge comeback in 2H19.

“Nevertheless, we opine that commodity-based sectors particularly LNG (liquefied natural gas) exports to contribute to a better growth in exports for 2H19. In addition, ringgit depreciation could also provide support to the estimate,” MIDF Research said.