Economic Watch: Malaysia pushes ahead with economic recovery with eye on RCEP

KUALA LUMPUR, April 22 (Xinhua) -- Malaysia continues to push ahead with its economic recovery as the country seeks to tap into the trade potential of the Regional Comprehensive Economic Partnership (RCEP) agreement, according to analysts.

Citing the strong recent growth of the country's exports, they said the country could expect to make gains this year and this would be complemented by RCEP, which will facilitate greater trade and economic activity which would benefit from the easing of COVID-19 restrictions in the country.

ROBUST FOREIGN TRADE

Malaysia External Trade Development Corporation (MATRADE), the national trade promotion agency under the International Trade and Industry Ministry, noted in its report on Monday that Malaysia has posted a great leap in its trade performance as of March.

"Trade expanded by 27.3 percent to 236.57 billion ringgit (55.18 billion U.S. dollars) compared to March 2021, the 14th consecutive month of double-digit growth," it said in a statement.

According to the report, Malaysian exports grew 25.4 percent to 131.64 billion ringgit, the eighth successive month of double-digit year-on-year (y-o-y) expansion, while imports increased 29.9 percent to 104.93 billion ringgit and trade surplus rose 10.3 percent to 26.70 billion ringgit.

Malaysia's largest trading partner, China, has been key in this trade recovery, making up 16.5 percent of Malaysia's total trade in March 2022, which increased 15.2 percent year on year to 39.02 billion ringgit, the 16th consecutive month of double-digit expansion, the statement said.

Meanwhile, Malaysia's exports to China climbed by 10.7 percent to 17.79 billion ringgit supported by higher exports of electrical and electronic products as well as palm oil and palm oil-based agriculture products.

Malaysia's imports from China, on the other hand, also expanded 19.3 percent year on year to 21.23 billion ringgit.

SEIZE RCEP OPPORTUNITIES

Malaysia for its part must quickly move to build on this momentum by minimizing tariffs and eliminating non-tariff barriers to enable more trade at a reduced cost, Azmi Hassan, a senior research fellow at Nusantara Academy for Strategic Research, told Xinhua in a recent interview.

Malaysia ratified the RCEP agreement in January, which came into force for the Southeast Asian nation on March 18.

"So, one way that has been done is through RCEP. This agreement is of great value to Malaysia as it will hopefully see an upswing of trade between both countries and this will be achieved by reducing tariffs and eliminating non-tariff barriers," he said.

"RCEP is the catalyst not only for Malaysia to recover economically from the pandemic's effects, but also for other nations which are included in the RCEP agreement," he said.

China, Japan, South Korea and also Australia being the big economies included in RCEP, he added, "it bodes well for smaller economies like Malaysia and others, and it will hopefully spur economic activity to get us out of the dire economic situation."

Signed in November 2020, RCEP groups the 10 members of ASEAN, as well as China, Japan, South Korea, Australia and New Zealand, covering roughly 30 percent of the world's gross domestic product and population.

STABILIZE DOMESTIC CONDITIONS

While trade data seems positive, Carmelo Ferlito, chief executive officer of the Center for Market Education, a Kuala Lumpur-based think tank, said the government must take the right steps in ensuring the recovery is sustainable and can stabilize domestic economic conditions.

Carmelo said the government must rebuild an environment conducive to both domestic and foreign investments.

In order to do so, more liberalization is needed in the labor market, with a rationalization of the incentive schemes and a tax reform centered on reducing income tax and re-introducing the Goods and Services Tax (GST), which had been abolished in 2018.

On food prices, Carmelo said, "the government should immediately remove price ceilings, because price ceilings discourage supply from ramping up and therefore price tensions remain high. Only when prices are temporarily high, supply can ramp up and the increase in supply will cool off prices."

He also said the government must implement a gradual plan of sending cuts to curb inflation and avoid further expansionary monetary policy which will be difficult to manage.

The country's central bank governor Nor Shamsiah Mohd Yunus told the media on March 30 that Malaysia's current monetary policy stance was appropriate and accommodative given the prevailing outlook and growth of inflation in 2022, during the publication of its annual report for 2021.

"Malaysia isn't out of the woods but better prepared for further challenges, due to improved COVID-19 management and higher vaccination rates," she said, adding that the central bank expects headline inflation to be around 2.2 percent to 3.2 percent in 2022. (1 ringgit equals 0.23 U.S. dollar)