Need to intensify fight against Delta variant

Slower exports growth in July by 5.0% y/y was due to softer manufacturing shipments which were affected by the contraction of the E&E segment from MCO 3.0.

To boost our economy and trade, we will need more extensive efforts to fight Covid-19’s Delta variant. It is likely to further slow the rebound, as firms and employees are still being held back from returning to office.

The Delta variant and the regional supply chain disruption will consequently extend the slide in growth. We expect 2021’s full year exports to grow 15% supported partly by a low base, benefits from pre-MCO 3.0 and firm commodity prices.

A. Highlights

• July’s trade data showed exports growing by 5.0% y/y to RM97.32 billion, the 11th consecutive month of expansion since September 2020. Imports rose by 24.0% y/y to RM83.64 billion. This brings the average exports and imports for the first seven months to 28.1% y/y and 22.6% y/y respectively. 
• Trade performance continued its growth momentum, up 13% y/y to RM180.96 billion, marking the sixth consecutive month of double-digit growth since February 2021. 
• Manufacturing shipments grew 2.3% y/y in July from 25.8% y/y in June, marking the weakest in 11 months due to poor E&E, which fell by 12.2% y/y from 14.2% y/y in June, its first contraction since May 2020.
• But manufacturing exports were backed by higher shipments of petroleum products, palm oil and palm oil-based agriculture products as well as chemicals and chemical products driven by robust external demand.
• Meanwhile, the strong imports performance was driven by intermediate and capital goods, up 42.7% y/y and 25.6% y/y in July compared to 25.3% y/y and 14.9% y/y in June, respectively. Consumption goods rose at a slower pace by 1.3% y/y in July from 19.3% y/y dragged by the decline in durable consumer goods, which dropped 22.2% y/y (June: +21.8% y/y).

B. Key Takeaways

• Foreign demand has propelled export economies such as China, South Korea and Malaysia. But that engine is showing signs of slowing. In China, both private and official manufacturing Purchasing Managers’ Indexes fell to their lowest levels in over a year in July, suggesting that domestic and overseas demand were cooling off. 
• To improve our economy and trade, we will need to intensify efforts to fight the Delta variant. It is disrupting the momentum rather than causing pronounced economic weakness, and there is a good chance that it will be shortlived.
• Given the region’s tightly integrated supply chains, factory shutdowns in one country can cause problems elsewhere. Even if the immediate threat of the virus subsides in a few, short months, its economic impact may linger for quite some time and Malaysia will feel the pinch.
• And if the Delta variant continues to spread fast in Asia while vaccination rollouts fall behind, it can lead to a string of longer term economic impacts. Hence, our exports are expected to face headwinds, including supplychain uncertainties, in the coming months.
• The Delta variant is likely to further slow the rebound, as firms and employees are held back from returning to office. It will consequently will extend the slide in growth.
• With the region including Malaysia serving as a base for global manufacturing, lockdowns have already hampered output. This is clearly reflected in our E&E segment. The surge of Covid-19 cases resulted to MCO 3.0 and it has impacted the semiconductor supply chain. Disruptions could prolong the supply chain uncertainty well into 2022 due to workers’ shortage arising from this pandemic and strong global demand. This would dash any hopes of recovery in 2H21. Additionally, it will worsen the already-strained global supply chains amid surging shipping costs and shortages of some components.
• Despite the slower growth now, a recovery is still underway. We expect 2021’s full year exports to grow 15% supported partly by a low base, benefits from pre-MCO 3.0 and firm commodity prices.

Source: AmInvest Research - 30 Aug 2021