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       PETALING JAYA: Corporate Malaysia is on track to chart a robust trade surplus this year in spite of headwinds led by the electrical and electronics (E&E) sector as the key driver of export growth.

       Although exports could hit some speed bumps, they are expected to be transitory as global trade gains momentum and with the ringgit likely to weaken against the US dollar, it will make exports cheaper and imports more expensive.

       RAM Rating Services Bhd senior economist Woon Khai Jhek said the country’s external trade, which has been the bright spot for the nation’s economy this year, is envisaged to remain robust in 2021.

       He told StarBiz that the overall export volume had recovered above the pre-pandemic levels despite the still underwhelming domestic demand conditions – indicative of the strength of the global demand recovery.

       Malaysia’s total export rebounded 25.9% year-on-year (y-o-y) as of year-to-date in July, fuelled by the robust rebound in global demand as well as elevated demand for rubber gloves and E&E goods.

       The country’s trade is anticipated to remain healthy through the rest of the year on the back of the rosy global economic recovery, with the International Monetary Fund (IMF) projecting global growth to come in at 6% in 2021 (2020: minus 3.2%).

       “Demand momentum is likely to be especially strong among developed economies owing to their high vaccination rates, which have allowed them to reopen faster.

       “IMF upped its 2021 GDP growth projection for advanced economies to 5.6% in its July report, from 5.1% in April. This bodes well for Malaysia, as the United States and Europe make up about 20% of Malaysia’s total exports, not accounting for the indirect demand attained through the global value chain.

       “Sector-wise, we expect E&E to remain the key driver to export growth owing to the current semiconductor super cycle. The current global chip shortage, which could remain a mainstay through 2022 and 2023, should also ensure that the sector continues to see relatively sustained demand,” he noted.

       Woon said petroleum and natural gas exports should also remain a major contributor moving forward. Global energy demand is envisaged to continue rising, in line with the ongoing recovery in economic activities, he said.

       Nonetheless, he said Malaysia, being a small and open economy that is highly integrated in the global supply chain, is still susceptible to disruption in global trade flow.Such risk has been rising as of late, he said as the rising Covid-19 infections in the region hit industrial activities. This has the potential to impact the country’s supply of production inputs, which could in turn impact exports.

       Woon said the industrial performance in the region, as indicated by the Purchasing Managers’ Index (PMI), has recently been on a weakening trend.

       “Supply chain issues, alongside Covid-19 curbs and supply shortages, were identified as the reasons behind the PMI index slipping month-on-month in June, July and August.

       “If this persists and impacts domestic production, it has the potential to undermine Malaysian exporters’ promising prospects,” he said.

       While a trade surplus is expected this year, it is unlikely that Malaysia will see any substantial narrowing of the trade surplus given the healthy uplift in export demand amid the ongoing global recovery, according to Woon.

       Trade surplus for the first seven months of 2021 stood at RM128.7bil – higher than the RM89bil and RM86.5bil respectively registered over the same period in 2019 and 2020.

       Furthermore, he said the sluggish domestic demand conditions were likely to weigh on import demand, particularly for consumer and capital goods. If the current trade patterns persist, the trade surplus for 2021 is expected to match, if not exceed, the level seen in 2020.

       Malaysian Rating Corp Bhd (MARC) chief economist Firdaos Rosli expected Malaysia to record a healthy trade surplus in 2021 and lend much-needed support to the economy’s overall recovery.

       Malaysian Rating Corp Bhd (MARC) chief economist Firdaos Rosli

       However, net exports were projected to record a slight contraction of 2.5%, with imports rising more than exports at 9.2% and 8%, respectively.

       “As the economy reopens, the tendency to import more is higher, although we believe this scenario is transitory amid higher electrical machinery exports and favourable ringgit terms.

       “Given the accelerated vaccination programme and the recent loosening of mobility restrictions, trade volume and value are expected to improve in the coming months as export-oriented firms may see easing in their supply constraints.

       “Trade will also be aided by the weakening ringgit, making exports cheaper. The US dollar is expected to strengthen when the US Federal Reserve finally decides to taper its balance sheet,” he said.

       While MARC expected a trade surplus for this year, Firdaos said there could be a narrower trade surplus as the global community was grappling with a spike in infections.

       With the emergence of more infectious variants of Covid-19, he said it remained to be seen if external demand would outstrip the previous year’s growth.

       The present crisis is not export-led, according to Firdaos.

       The supply shock in 2020, which spilt over to the current year, remained a challenge as firms are still operating at partial capacity.

       “This scenario has disrupted the overall trade environment. But we view this as a temporary setback. As a major trading nation, trade will likely perform in the country’s favour as the domestic and international borders open up,” he said.

       He said the E&E industry would support trade amid chip shortage and the global drive for digitalisation. Its exports have improved by 20.4% in the seven months of the year versus the same period in 2020, he noted.

       OCBC Bank economist Wellian Wiranto expected supportive export landscape that would help Malaysia retain its trade surplus. for the year.

       OCBC Bank economist Wellian Wiranto.

       Malaysia has been an integral part of the global semiconductor supply chain and should continue to benefit from the uptick in demand in that field, he said.

       However, two factors might present downside risks to the degree of uplift for the rest of the year, affecting both demand and supply.

       “We might be experiencing a relative downtick in demand in the coming months from China and the United States, given the relative slowdown in the respective economies.

       “For the United States, partly because of the Covid-19 resurgence fears, the economic data has broadly been surprising expectations on the low side. If the trend continues, it might portend a slower recovery rate.

       “Second, the risk has to do with the impact of resurgence within Malaysia, with news suggesting that firms involved in the packaging and testing segments of the semiconductor chain which are operating in the country have had to go through shutdowns and clean-ups due to virus clusters.

       “While the ongoing rapid vaccination effort may yet turn the tide on the clusters – and hence production shutdown – the impact will remain,” Wellian said.