KUCHING: RAM Rating Services Bhd (RAM) believes Malaysia still experiences sound export performance but is seeing this trend weakening in the long term run.
Given the country’s status as a small, open economy with exports currently accounting for 88.8 per cent of its GDP, Malaysia is vulnerable to any sudden or sharp drop in external demand, it said in a statement yesterdau
Coupled with the enhanced connectivity across the region, the drivers of Malaysia’s export performance significantly influence the ability of its exports to remain competitive and fuel sustainable economic growth.
“Malaysia’s export performance is rather varied compared to its Asean counterparts – performing better than some such as Thailand and Indonesia, but not as strong as some others.
“In the last decade, Malaysia’s export environment has evolved, leading to structural changes. Export composition, destination markets and competitiveness have altered, brought about by the changing dynamics of both supply and demand.”
RAM observed that over the years, Malaysia’s export structure has widened, making it the second most diversified export nation within Asean in terms of product mix.
“Moreover, our export mix has remained relevant to global markets, as underlined by compatibility indices,” it added. “These two factors have contributed to Malaysia’s resilient export performance compared to its neighbours amid the global structural shifts in trade structures.
“Amongst the Southeast Asian economies, Malaysia displays the highest level of structural compatibility in trade structures with China and Japan, namely the world’s second and third richest economies that have helped sustain export growth when demand from traditional western industrialised heavyweights has wavered.”
On the other hand, this higher degree of compatibility also brings about the issue of heightened susceptibility to global economic shocks, it said.
“For one, the high level of compatibility with China and Japan poses risks to the strength of Malaysia’s export performance due to the significant structural challenges in these two countries’ economies, along with the fact that exports to these markets accounted for a respective 12 per cent and 11 per cent of our total exports in 2014.
“Moreover, the relatively high level of trade openness and trade diversification also points to the possibility that risks and shocks can stem from a greater number of source economies, and considerably inflates susceptibility to trade shocks amid economic downturns.
“Does such a scenario indicate that Malaysia’s strong export run is coming to an end? The longer-term indicators are mixed,” RAM opined. “Although the trade-specialisation measures of the RCA are declining for the more important components such as E&E, product-mix and compatibility indicators point to some positive trends vis-à-vis a broader market base.”
In any case, RAM said the more immediate-term indicators like price competitiveness show a more consistent upside for export performance, lending weight to the expectation that Malaysia’s export performance will be supported by the currently weaker ringgit and the up-cycle for industrialised economies that are finally strengthening from years of anaemic growth.
“Although these favourable factors are anticipated to remain intact for at least a few more years, longer-term sustainability will require a concrete and credible strategy to drive high-value-added exports and, therefore, the ability to compete beyond price.”