Malaysia’s high dependence on external demand could hamper economy: Economists

KUALA LUMPUR: Malaysia may have posted record trade figures for 2018, especially exports which almost breached RM1 trillion, but economists caution that its dependency on external demand could result in slower trade.

This is amid the rising economic and geopolitical tensions such as Brexit and the US-China trade war.

Malaysia’s total trade in 2018 remained resilient with a 5.9 per cent growth to RM1.88 trillion from RM1.77 trillion recorded in 2017, according to the International Trade and Industry Ministry.

The country’s exports rose 6.7 per cent to RM998.01 billion from RM935.39 billion in 2017, while import for 2018 increased 4.9 per cent to RM877.74 billion from RM838.14 billion.

This led to widened trade surplus of 22.1 per cent to RM120.27 billion, the fastest growth rate in 10 years.

Asian Strategy & Leadership Institute (ASLI) Centre of Public Policy Studies chairman Tan Sri Ramon Navaratnam said Malaysia’s international trade was dependent on how much the country can produce and sell, which will determine the price for exports.

“If the demand in overseas is rising, then we will sell more at better prices. However, the current world economy is slowing down dragged by international developments such as Brexit and China-US trade war. This will hamper our export growth,” he told NST Business today.

He expects Malaysia’s export to slow down this year, reflecting the downturn of the global economic scenario.

“As a small country, Malaysia is the 20th largest trading partner in the world. This means Malaysia is a very open economy and whatever happens elsewhere can affect us, unlike China and India which are capable to increase their domestic consumption as their economy are huge,” he added.

Navaratnam said China and India were able to encourage their citizens to “buy and spend” more given their vast domestic demand.

“We are caught in a bind – where we don’t have space to operate. Although Malaysia is an open economy, the country is not technically advanced as it has strong dependence on external demand,” he said.

Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said Malaysian exports had grown at moderate pace last year.

He said this was in tandem with heightened uncertainties brought by the trade friction between the US and China, tightening financial condition due to the increase in the US interest rate and UK Brexit, among others.

“We have also seen that the Global PMI index gradually declined from 54.5 points in December 2017 to 51.5 points in December 2018, suggesting business sentiments have weakened.

“Going forward, the extent of trade tension between the US and China will be the primary factor that will shape the international trade,” he added.

Afzanizam expects Malaysia’s export to grow moderately this year, following the downward revision in global growth forecast by the the International Monetary Fund and World Bank.

Source: NST