Downside Risk on exports remains

Lunar New Year holiday, coronavirus outbreak, still global tech down cycle and weak commodity related exports impacted overall exports performance in January. Exports fell by 1.5% y/y in January. At the same time, January’s imports fell 2.4% y/y as a result of poor capital and consumption imports with weaker intermediate imports. And since imports fell faster than exports, trade surplus in January remained at a healthy RM12bil.

Trade outlook remains challenging as we move ahead. Impact from the coronavirus which has disrupted global supply chain and shipping is likely to continue in the months ahead. With the drop in global trade, ie exports and imports added with a still global tech down cycle plus weaker commodity prices, there is more downside risk on both our exports and imports. It is partly reflected by the poor manufacturing activities reflected by the Markit Manufacturing PMI which is still in the contraction region. On that note, the 2020 GDP growth is more likely to be around 3.0% with an upside at 3.8% and downside around 2.5%.

• Lunar New Year holiday, coronavirus outbreak, still global tech down cycle and weak commodity related exports impacted overall exports performance in January. Exports fell by 1.5% y/y in January from +2.7% y/y in December. In line with poor exports, January’s imports fell 2.4% y/y from +1.0% y/y in December. Since imports fell faster than exports, trade surplus in January remained at a healthy RM12bil (RM12.6bil in December 2019)

• Looking at the exports segment, revenue earned from E&E exports remained lacklustre, down by 5.5% y/y from -5.4% y/y in December – marking the fifth consecutive months of negative growth. At the same time, commodity-related exports performance were weak. Exports proceeds from mining and agriculture fell by 20.1% y/y and -4.2% y/y respectively in January from -23.0% y/y and 27.0% y/y respectively in December.

• Weaker overall imports in January was a result of weaker performance across the board. Capital imports fell sharply by 15.0% y/y in January from -11.0% y/y in December. Besides, consumption goods fell 1.0% y/y from +3.2% y/y in December while intermediate goods grew slower by 3.8% y/y in January from 6.2% y/y in December.

• During the month of January, our trade to US continued to grow, up 9.5% y/y from 15.1% y/y in February. However, exports to China fell by 5.7% y/y from + 17.8% y/y in December.
   
• Meanwhile, our palm oil shipments to India plunged by -85.3% y/y to 4.69 tonne in January (-51.2% y/y in Dec). But the drop in palm oil demand from India was partially taken up by Pakistan, up 111.8% y/y to 170.8 tonne in January from - 12.7% y/y in December.
   
• Trade outlook remains challenging as we move ahead. Impact from the coronavirus which has disrupted global supply chain and shipping is likely to continue in the months ahead. With the drop in global trade, i.e. exports and imports added with a still global tech down cycle plus weaker commodity prices, there is more downside risk on both our exports and imports. It is partly reflected by the poor manufacturing activities reflected by the Markit Manufacturing PMI which is still in the contraction region. On that note, the 2020 GDP growth is more likely to be around 3.0% with an upside at 3.8% and downside around 2.5%

Source: AmInvest Research - 5 Mar 2020