Published on 06 March 2015
As the uncertain external environment has
become even more so of late, the resilience of Malaysia’s export
performance has come into question. Given the country’s status as a
small, open economy (with exports currently accounting for 88.8% of its
GDP), Malaysia is vulnerable to any sudden and/or sharp drop in external
demand. Coupled with the enhanced connectivity across the region, the
drivers of Malaysia’s export performance significantly influence the
ability of our 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.
Under the circumstances, electrical and electronic
equipment (E&E, 31%), mineral fuels (22%) and other primary
commodities (17%) have emerged as Malaysia’s 3 most important exports in
the last few years. The largest component of these prime exports,
E&E, has experienced a weakening in its position in specialisation
since 2001 (measured by Revealed Comparative Advantage or RCA), and
poses some cause for concern vis-à-vis Malaysia’s standing as the
second-largest E&E exporter in ASEAN after Singapore. The
implications are far-reaching, with the potential of exerting downward
pressure on export earnings if this key export were to lose its
relevance in the global arena. At present, manufactured exports such as
these are still expected to receive a short-term boost from the
currently weak ringgit, which is favourable to the expansion of exports.
Despite the growth and dominance of the aforesaid 3
main products, 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. These 2 factors have contributed
to Malaysia’s resilient export performance compared to its neighbours
amid the global structural shifts in trade structures. Amongst the
South-east Asian economies, Malaysia displays the highest level of
structural compatibility in trade structures with China and Japan, i.e.
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. 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 2
countries’ economies, along with the fact that exports to these markets
accounted for a respective 12% and 11% 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.
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, 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.
For further information, please refer to the full paper here.
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