By Mohd Noor Musa and Lili Fariza Ariffin
The deteriorating state of Malaysia’s international trade as carried by several reports, including that by the Institute of Chartered Accountants in England and Wales (Icaew) recently, is very worrying.
It was reported that Malaysia will not escape a global slowdown this year and growth will be lower than last year.
The Icaew report highlighted Malaysia’s export performance which has experienced a decline in volumes over recent quarters. It also identified easing external demand as a significant challenge for Malaysia’s export sector.
There is, indeed, an urgency on the part of the present government to address the dampened economic outlook that has cast a cloud on our economy.
Immediate mitigating initiatives or steps must be considered as key strategies for consideration.
It must be prepared to do what needs to be done to mitigate the anticipated impact of the economic slowdowns the world over and recalibrate itself to be able to handle the challenging situations.
Diversifying the economy, reducing reliance on exports, promoting domestic consumption, strengthening the service sector, fostering innovation and embracing technological advancements are among several major strategies of significant challenges that should be implemented without delay and with cautious optimism.
In addition, Malaysia should explore alternative markets, optimise resource allocation and enhance governance to navigate Malaysia’s uncertain global trade landscape effectively to help alleviate the slowdown.
The government should maximise the potential of intra- Asean market and broader economic integration and investment.
Given the region’s reliance on trade and vulnerability to external shocks, there is a need to further increase our visibility vis-a-vis intra-Asean trade and investment to strengthen our supply chain resilience and improve our regional value chains.
Malaysia should also leverage on the momentum and imperative of digital transformation and seize the enormous opportunities presented by digital technologies to boost the economy.
This requires strong political will to propel an inclusive and resilient recovery.
To this end, a number of cross-cutting enabling factors must be implemented – policy measures and responses, financing and resource mobilisation, institutions and governance mechanisms, stakeholder engagement and partnership and effective monitoring.
Susceptible to downturn
Data obtained from the Department of Statistics Malaysia (DOSM) in May, 2019, showed an increase in exports but Malaysia remained susceptible to downturn risks.
This is largely influenced by external factors, particularly the uncertainties in the two-way trade between the US and China.
The sudden decline in international trade risk was observed during the Covid-19 pandemic in mid-2020, which resulted in substantial drops in exports.
As of this month, the latest data by the Investment, Trade and Industry Ministry revealed a pronounced decline in both imports and exports.
It reported that Malaysia’s exports had decreased by 18.6 percent year-on-year to RM115.16 billion in August, while imports had reduced by 21.2 percent year-on-year to RM97.85 billion.
Total trade had also contracted by 19.8 percent year-on-year to RM213.01 billion, amid slower global demand and lower commodity prices.
It is evident that Malaysia’s international trade is facing substantial challenges, external uncertainties, changing consumer preferences and geopolitical tensions.
Our economic growth has hit the lowest in nearly two years in the second quarter of this year, mainly due to sliding exports and a global slowdown.
The second-quarter annual growth came in at 2.9 percent as reported by Bank Negara Malaysia (BNM).
The expansion was the slowest pace since the third quarter of 2021 when the economy contracted by 4.2 percent and was lower than the 5.6 percent growth in the first quarter of the year.
Compounded by the depreciating ringgit which is expected to trade at 4.72 to the greenback by the end of this quarter, these challenging situations have worsened trade growth and inflation, thus, affecting the purchasing power of businesses and consumers.
Private consumption had slowed down to 4.3 percent in the second quarter from 5.9 percent in the first quarter of this year, while net trade had contributed negatively to the gross domestic product (GDP), with exports declining by 9,4 percent and imports shrinking by 9.7 percent in the second quarter.
The deceleration in the country’s growth is so evident that it is expected that this year’s GDP figure will be close to the lower end of the 4.0 percent to 5.0 percent range, which is slightly more pessimistic than the previous projection.
This coupled with the perceived increases of unresolved domestic challenges such as the rising cost of living, deteriorating housing affordability, low savings and heavy debt burden, all of which have been the subjects of ongoing debate and discussion have been affecting our economy.
It is, therefore, imperative for the government and the relevant ministries to also consider the insights from academic research presented in “Does Import Affect Economic Growth in Malaysia” by Mori Kogid, Dullah Mulok, Kok Sook Ching and Jaratin Lily which suggested a complex relationship between import, economic growth and governance.
The sluggish trade growth should be addressed with cautious optimism to ensure the nation’s economic resilience in the face of a challenging global environment.
Affirmative and accommodative actions such as relooking at some of our policies, need to be expedited to ease elevated risks.