THE United States said on June 8 it officially fell into recession in February, a grim situation that is likely to hit the Malaysian economy, which is “ravaged” by the global recession arising from the Covid-19 pandemic, said an economist.

“A prolonged and deep US recession will hamper the recovery of Malaysian exports as the US market accounted for about 8%-9% of our total exports,” Lee Heng Guie of the Socio-Economic Research Centre told The Malaysian Insight.

Malaysian exports are going to feel the pinch, said Dr Shankaran Nambiar, senior research fellow at the Malaysian Institute of Economic Research.

The country’s trade profile will be affected as the US undergoes its worst quarter of the year.

“Though we are in RMCO (recovery movement-control order) mode, there is no denying the fact that the external environment is weak.  

“This is going to be the worst quarter in the year for the US. Consequently, it is going to affect our trade profile. Our exports are going to feel the pinch,” Nambiar said.

The electrical and electronics sector, which is one of Malaysia’s major exports to the US and a significant contributor to overall exports, is likely to see a decline, he said.

While China, another of Malaysia’s largest trading partners, is also trying to stimulate its domestic economy, Nambiar said this may not be enough to boost our exports.

“In short, the negative factors coming out of the US and China will severely affect our growth potential in Q2.

“The worst scenario will roll out in Q2 when export-oriented companies open anxiously, only to find that the demand from the US and China is unsatisfactory,” he added.

According to data from the Malaysia External Trade Development Corporation (Matrade), exports declined by 23.8% to RM64.9 billion in April 2020, compared with the corresponding month in the previous year.

It is also the first monthly deficit in more than 22 years since October 1997.

Trade with China declined by a marginal 1.5%, while trade with the US fell by 19.6% year-on-year to RM10.67 billion.

China represents 19.7% of Malaysia’s total trade while US accounts for 8%.

Trade for the first four months of the year saw a 3.5% y-o-y decline to RM573.75 billion from RM594.67 billion.

International Trade and Industry Minister Mohamed Minister Azmin Ali said the declines in both exports and imports were expected, as most countries around the world were under some form of lockdown to curb the spread of Covid-19.

“This has caused major disruptions to the manufacturing activities and movement of goods globally. Nevertheless, exports of some products such as iron and steel, rubber gloves and refined palm oil recorded increases,” said Azmin, who is also a senior minister.

Exports are expected to improve in the coming months as more industries resume operations and start operating at full capacity.

“Similarly, companies in other countries are also ramping up their business operations. This will boost trade activities between Malaysia and other countries,” he added.

The World Bank has projected the global economy to contract the most since World War II this year and global gross domestic product to shrink by 5.2%.

Emerging and developing economies are likely to see their worst performance since the 1960s with a 2.5% decline in growth. – June 15, 2020.