PETALING JAYA: In spite of trade activities coming under pressure amid tighter restrictions due to the high number of Covid-19 cases, the country’s trade surplus for the year is expected to be sturdy.

       Although some sectors may see cancellation of future export orders and disruption in supply chains due to the tighter restrictions from the lockdown, on the whole, economists are confident that the nation’s trade surplus would remain sizable this year.

       In a bid to curb the pandemic, the government has announced the enhanced movement control order (EMCO) in parts of Selangor and Kuala Lumpur that started on June 3 and will last until the 16th of this month.

       CLICK TO ENLARGE

       The trade surplus in May narrowed to RM13.7bil from RM20.5bil in April. Exports rose 47.3% year-on-year (y-o-y) in May (versus 63.0% y-o-y in April), while imports surpassed exports growth for the first time since April 2020, expanding 50.3% y-o-y (24.4% y-o-y in April).

       Socio-Economic Research Centre (SERC) executive director Lee Heng Guie told StarBiz that on the whole, he expects trade surplus would remain substantial at RM208.6bil in 2021, against RM184.8bil in 2020.

       “We expect the renewed lockdown in June and July with a 60% manpower capacity for the export-oriented industries, manufacturing sector and plantation would hamper the delivery of exports shipment, and may result in the cancellation of future orders as the buyers are concerned whether their orders can be fulfilled without interruption, ” he said.

       Amid the divergent recovery between advanced economies and regional economies, he said exports are expected to grow by 15.8%, with stronger first half (estimated at 26.7% y-o-y) before slowing to an estimated 6.6% y-o-y in the second half of the year as low base effect dissipates.

       “Global demand for electronics will be sustained by increased usage of digitalisation, data solutions and applications, as well as the 5G development. Palm oil and crude oil prices are expected to hold at steady levels, ” Lee noted.

       RAM Rating Services Bhd economist Nadia Mazlan (pic below) said although the trade surplus narrowed to RM13.7bil in May, this trend is not expected to subsist in the remainder of the year as import growth is unlikely to outpace export growth.

       She said the recent lockdown measures are expected to weigh on import demand for both consumer goods and capital goods whereas exports would continue to be driven by strong demand for rubber gloves and electrical and electronics (E&E) products.

       “If trade patterns maintain the current pace, we can expect to see a larger trade surplus this year from last year, ” she added.

       Nadia expects export growth momentum this year to remain supported by a global recovery and a semiconductor super cycle, with nominal export growth reaching 10%-15% for full year 2021.

       In the coming months, she said the high growth rates of the past few months are likely not sustainable as low base effects start to dissipate.

       Malaysia’s trade balance for the first five months of this year stood at RM92.8bil, just above the half-way mark of 2020’s trade balance of RM184.8bil.

       Taking a cautious stance, OCBC Bank economist Wellian Wiranto (pic below) said that in the near term, Malaysia’s exports might not grow as strongly as earlier this year.

       While May figures remained healthy, he said they nevertheless signalled some relative slowdown from what was admittedly a very strong start of the year.

       The all-important E&E components segment, he said for instance, saw a marked month-on-month decline of 14.8% in May, following a drop of 6.3% the month before.

       While this may well be due to some short-term product cycle readjustments, Wellian said the country might start to see some adverse impact from the MCO restrictions in the June numbers ahead.

       “Although E&E is deemed as ‘essential services’, reports suggest that there might have been some disruptions along the supply chain due to closure of related businesses. Given its outsized role in supporting exports, this is an area to watch in the coming months.

       “Moreover, given that the enhanced MCO is being rolled out for Selangor and KL areas – which comprise 40% of the total gross domestic product (GDP) – involving factory closure, we are likely to see sustained pressure at least into the month of July too.

       “Overall, we still see relatively healthy growth for exports, especially if we can move beyond the phase one of the National Recovery Plan (NRP) sometime soon, ” he said.

       The trade balance, however, is unlikely to be higher than 2020, he said.

       Although exports should be doing better than last year, he felt that imports would likely go up as well as the economic recovery takes hold, hence the net effect would be a thinner trade balance, even if it would remain squarely in the surplus territory.

       Meanwhile, AmBank economist Anthony Dass (pic below) said the outlook for trade activities post-July would depend on how well the pandemic is being managed, speed of the vaccination programme, how quickly the economy opens up and also on the standard operating procedures (SOPs).

       “Any delay in opening up will present risk of big boys moving their operations to parent companies or elsewhere as uncertainty increases. It may also dampen the foreign investors’ appetite here.

       “If all goes according to the four-phase NRP, then exports are expected to recover in the fourth quarter of the year. Our export projection for the full year is 15% from -1.4% in 2020, ” he said.

       As to whether more should be done to spur the nation’s trade, SERC’s Lee said, among others, the government needs to quickly ratify the Regional Comprehensive Economic Partnership (RECP) and Comprehensive and Progressive Trans-Pacific Partnership (CPTPP).

       The government should also provide trade and investment facilitation to Malaysian companies, manufacturers and exporters to sell more in the international markets within the 15 members RCEP markets and 11 members CPTPP bloc.

       To spur trade, RAM’s Nadia said shifting towards automation and digitalisation as well as upskilling could strengthen firms’ resilience and safeguard production from the impact of lockdowns.

       “The government has attempted to address and encourage this through Industry 4WRD: National Policy on Industry 4.0 as well as the incentives in the various stimulus packages.

       “However, many firms, especially SMEs, may be more concerned about the short term i.e. surviving this pandemic rather than longer-term plans such as capital investments for future expansions, ” she noted.