Malaysia exports to remain sluggish in 2H16, demand weakens

KUCHING: Malaysia’s exports is expected to remain sluggish in the second half of 2016 (2H16) as global economic uncertainties decelerate demand, analysts observed.

RHB Research Sdn Bhd (RHB Research) in a recent report, highlighted: “The weak global economic outlook and increasing uncertainty suggest that Malaysia’s exports will likely remain sluggish in the second half of 2016 (2H16).

“On balance, we expect the country’s exports to grow only modestly by 1.6 per cent in 2016, easing further from 1.8 per cent in 2015.”

On the home front, despite a strong showing in 2Q16, RHB Research still expect domestic demand to ease back somewhat, driven mainly by a slowdown in private consumption and investment.

“On balance, we are keeping our annual real gross domestic product (GDP) growth forecast of 3.9 per cent unchanged for 2016, easing from five per cent registered in 2015,” it added.

As a whole, the research team explained that industrial activities eased to 3.6 per cent year-on-year (y-o-y) in the January to July period, from 5.5 per cent in the corresponding period last year, mainly due to a slowdown in mining and manufacturing output.

“With a slowdown in manufacturing production and tepid growth in exports, we expect real GDP growth to continue its slowing trend to 3.9 per cent y-o-y in 3Q16, from four per cent recorded in 2Q and compared with 4.2 per cent in 1Q,” it said.

Moving forward, the research team pointed out that the global economic outlook is still faced with headwinds following signs that the US economy was not performing as well as expected in a string of data released in August.

“As a result, expectations on the US Fed raising interest rate are being pushed forward to the later part of the year.

“Nonetheless, some are expecting the US to raise interest rate soon, causing some volatility in the US equity market,” it commented.

In the eurozone, it noted that the region’s economic growth slowed by almost half to an annualised pace of 1.2 per cent in 2Q.

Nonetheless, it said, the European Central Bank preferred to stand pat and reassess its quantitative easing policy even though inflation still stuck at near zero for almost two years and its three major economies, namely Germany, France and Italy, are losing momentum.

Similarly, up north, Japan’s economy slowed sharply in 2Q and the Bank of Japan is reviewing its monetary policy move, after the government’s stimulus spending and its qualitative & quantitative easing fell short of market expectations, it said.

RHB Research also noted that China’s economy is still facing downward pressure, as exports remain sluggish and investment falters.

“Given the challenging global economic environment, global trade activity continues to remain sluggish with the global merchandise trade contracting for the 21st consecutive month in June, according to the World Trade Organisation (WTO).

“Indeed, global trade contracted by 3.6 per cent y-o-y in June, worsening from -2.2% in May and compared with a low of minus 14.5 per cent in May 2015.

“This suggests that the global economic recovery is still without much momentum. Besides, it is in its seventh year of growth in the current cycle in 2016 where the late stage of an economic growth cycle tends to be associated with higher downside risk,” it commented.

Meanwhile, on the local front, while RHB Research expect domestic demand to ease, it does not expect consumer spending to falter, as the Government has increased cash assistance via Bantuan Rakyat 1Malaysia (BR1M) for the low-income group of population and additional tax relief has been provided for individuals in 2016 to help ease their burden.

“It will also be cushioned by high savings rate, an increase in minimum wage and the Government’s measure to cut employee’s contribution to the Employee Provident Fund (EPF) by three percentage points.

“Meanwhile, the revision to civil servants’ salary scales and the payment of half a month bonus to civil servants would also help,” it added.

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