1. 2 nd NATIONAL EXPORT FORUM 2008 Steven C.M. Wong* Institute of Strategic and International Studies (ISIS) Malaysia * The opinions expressed are solely those of the speaker Future Outlook of Malaysia’s Export Performance

2. OUTLINE Present status Short-term outlook Medium- to longer-term horizon Conclusions Future Outlook of Malaysia’s Export Performance

3. PRESENT STATUS Strong growth in export value since 2001 Manufactured products account for more than 75%, and electrical and electronics about 45%, of total exports ASEAN countries, particularly Singapore, Thailand, Indonesia and Vietnam, represent a quarter of the total export market The US is the largest single market (16%), followed by the EU countries (13%) and Mainland China (9%) and Japan (9%) Fastest growing markets have been those of ASEAN, Northeast Asia and the South Exports to US, comprising mainly E&E products, have been tapering off and begun to show decline Future Outlook of Malaysia’s Export Performance

4. Future Outlook of Malaysia’s Export Performance TOTAL EXPORT VALUE, 2000-2007 (e)

5. Future Outlook of Malaysia’s Export Performance MAJOR EXPORTS, 2007 (e)

6. Future Outlook of Malaysia’s Export Performance MAJOR EXPORT MARKETS, 2007 (e)

7. Future Outlook of Malaysia’s Export Performance GROWTH OF MAJOR EXPORT MARKETS, 2000-2007 (e)

8. SHORT-TERM OUTLOOK Exports to the US look increasingly vulnerable, with high risks (not certainty) of an economic recession The combined impact on Malaysian exports could be substantial taking into account parts & component (P & C) trade with the US as the final destination market Compounding the uncertainty is the price-quantity effect of appreciated Asian currencies on US demand De-coupling scenarios only work if domestic absorption is substantially and simultaneously increased in the Rest of the World East Asian countries are investing too much and consuming too little Economic integration of East Asia is production-oriented and not consumption-based. Future Outlook of Malaysia’s Export Performance

9. SHORT-TERM OUTLOOK Future Outlook of Malaysia’s Export Performance Share of Intra- Regional Mfg in Total Regional Mfg Exports + Imports Share of Intra-Regional Mfg in Total Regional Mfg Trade ExportsImports 199320051993200519902005 East Asia47.354.040.044.446.968.9 NAFTA40.040.746.951.534.833.7 EU-1566.259.066.958.265.559.8

10. SHORT-TERM OUTLOOK Future Outlook of Malaysia’s Export Performance Share of intra- regional in Total trade (Exports + Imports) Share of intra-regional trade Parts and Components Finished Goods 199320051993200519902005 East Asia47.354.051.067.146.247.5 NAFTA40.040.745.044.338.139.5 EU-1566.259.064.756.366.559.7

11. SHORT-TERM OUTLOOK Future Outlook of Malaysia’s Export Performance Intra-regional trade is concentrated. Just 30 exports account for 50% of total trade, primarily office machinery, telecommunications, electronics, textiles and clothing. Intra-regional trade is parts and components-driven and China-centred. International production sharing has driven intra-regional trade, with Japan, Korea and Taiwan being major suppliers and China being the production platform. Studies show before there is a sharp increase of East Asian exports to the US, intra-regional trade rises. An increase in Japanese exports to the region also leads to higher exports to the US.

12. SHORT-TERM OUTLOOK Future Outlook of Malaysia’s Export Performance

13. Future Outlook of Malaysia’s Export Performance Structural Factors Likely to Affect Malaysian Exports ProducersConsumersMarkets Industrial restructuring Business outsourcing Distribution Technology Knowledge, design New entrants Corporate social responsibility Lower consumer choice Cost conscious Time sensitive Quality, performance, value Information, services New consumers Environment, security, politics, etc. Imperfect competition Globalised Borderless Convergence Trade in services New trade hubs & regimes Government regulations MEDIUM- TO LONGER-TERM HORIZON

14. Future Outlook of Malaysia’s Export Performance Specific Factors Likely to Affect Malaysian Exports – (1) Trade creation from China, India, Vietnam & other rapidly growing economies (+ve) Regional economic integration via Asean Economic Community and Plus One (and possibly Plus Three, Plus Six) countries (+ve) Displacement effects in third markets as a result of competition from emerging economies (-ve) Spill-over/exclusion effects from third-party regional trading arrangements (?) Stable exchange rate and macroeconomic regime (+ve) Integration of export-sector with domestic economy MEDIUM- TO LONGER-TERM HORIZON

15. Future Outlook of Malaysia’s Export Performance Specific Factors Likely to Affect Malaysian Exports – (2) Generating investments in targeted growth areas (IMP3) Integrating Malaysian companies into regional and global networks (IMP3) Sustaining the contribution of manufacturing sector to growth (IMP3) Positioning services as a major source of growth (IMP3) Facilitating development and application of knowledge-intensive technologies (IMP3) Developing innovative and creative human capital (IMP3) Creating a more competitive business-operating environment (IMP3) Strengthening the role of private sector institutions (IMP3) MEDIUM- TO LONGER-TERM HORIZON

16. Future Outlook of Malaysia’s Export Performance MEDIUM- TO LONGER-TERM HORIZON Economic Union Common Market Free Trade Area Preferential Trading Arrangement Customs Union Free Trade Area Plus Most Favoured Nation

17. Future Outlook of Malaysia’s Export Performance MEDIUM- TO LONGER-TERM HORIZON Regional Trading Arrangements ASEAN Free Trade Area ~ 2010/2015 ASEAN - China ~ 2010/2015 ASEAN - Japan ~ 2012/2017 ASEAN - Korea ~ 2012/Unstated ASEAN Economic Community ~ 2015 ASEAN – India ~ ? ASEAN – Australia/New Zealand ~ ? East Asian Free Trade Area ~ ? Comprehensive Economic Partnership in East Asia (CEPEA) ~ ? European Union ~ ?

18. Future Outlook of Malaysia’s Export Performance Challenging short-term environment Total de-coupling scenario is unlikely Exact depth and duration of impact will depend on individual & collective actions Longer-term structural changes also require attention National and regional supply-side strategies and initiatives are in place and hinge on implementation effectiveness The extent to which they respond to demand-side changes, including those of importing country governments, remain to be seen Given speed of change, policy action deficits should be felt quickly on national welfare CONCLUSIONS