ECONOMIC REPORT

The positive momentum in our exports growth was short-lived with August’s export data unexpectedly declining by 0.8% y/y from a gain of 1.7% y/y in July. Meanwhile, imports fell deeper into the contraction region to -12.5% y/y in August from -5.9% y/y in July and marking the weakest growth since September 2009.

Year to date, exports and imports averaged at -0.5% y/y and -4.0% y/y, respectively. Now with the conundrum on slowing global growth gradually taking a toll business and consumer confidence, we remain broadly cautious on our trade activities albeit expecting sustained demand in selected commodityrelated product to cushioned some pain. Hence, we still maintain our export and imports target at 0.5% and -2.0% for 2019.

• The positive momentum in our exports growth short-lived with August’s export data unexpectedly declining by 0.8% y/y from a gain of 1.7% y/y in July while market consensus stood at 2.5%. Meanwhile, imports fell deeper into the contraction region to -12.5% y/y in August from -5.9% y/y in July and marking the weakest growth since September 2009. The lacklustre trade performance resulted to a narrower trade surplus of RM10.9bil from RM14.3bil in July.

• The decline in imports was broad-based with capital goods falling the most at -31.0% y/y in August from -14.0% y/y in July due to a high-base impact. Meanwhile, the intermediate imports and consumption goods contracted by 13.9% y/y and 12.8% y/y in August compared with -3.4% y/y and -5.0% y/y, respectively in July. Although the highbase impact is partly the reason for a poor imports number, both intermediate and capital goods have been slowing down for most of 2019, signalling manufacturing goods exports are likely to stay subdued for the remaining of 2019. Year to date, the average growth for capital and intermediate goods stood at -12.6% y/y and 0.5% y/y, respectively.

• The lacklustre exports performance on the other hand is attributed to a sharp decline in electrical & electronic exports, down 7.4% y/y from +4.5% y/y in July – marking a low since February 2013. The drag largely came from a decline in electronic integrated circuits (-6.0% y/y from 10.3% y/y); and parts & accessories for office machines (- 30.7% y/y versus -24.6% y/y).

• Meanwhile, commodity-related exports were mixed. Palm oil and palm oil-based product surged by 23.3% y/y in August from -14.2% y/y in July supported by strong demand from India and China by 307.2% y/y and 176.1% y/y, respectively. We believe the near-term demand for palm oil products will remain buoyant, in particular from our largest customer India due to the upcoming Diwali festive seasons. In contrast, LNG exports declined by 11.2% y/y from 31.3% y/y in July. We believe it is due to temporary maintenance shutdown of Sabah-Sarawak gas pipeline.

• Looking at demand from our key trading partner, shipments to China declined by 2.8% y/y in August from +3.8% y/y in July. Likewise, exports to Singapore, Hong Kong, and Thailand continued fell by 7.2% y/y, 15.4% y/y and 8.3% y/y, respectively. However, exports to the US continued to expand albeit at a softer pace of 6.8% y/y in August compared to 7.9% y/y in July.

• Year to date, exports and imports averaged at -0.5% y/y and -4.0% y/y, respectively. Now with the conundrum on slowing global growth is gradually taking a toll business and consumer confidence, we remain broadly cautious on our trade activities albeit expecting sustained demand in selected commodity-related product to cushioned some pain. Hence, we still maintain our export and imports target at 0.5% and -2.0% for 2019.

Source: AmInvest Research - 7 Oct 2019