• Trade balance narrowed in May 2022, influenced by higher imports growth at 37.3% y/y, compared to exports growth of 30.5% y/y.

• Both exports and imports are expected to support Malaysia’s economic growth alongside with firm commodity prices, expanding private consumption, improving business conditions, and elevated global commodity prices.

• Our exports and imports forecast for 2022 are 26.0% y/y and 25.0% y/y respectively. The upwards revision of our forecast was due to higher average selling prices which is seen compensating for any shortfalls from volume affected by supply disruptions and labour shortages.

External Trade Stronger in May

Highlights

May trade balance narrowed by 8.2% y/y to RM12.6 billion following stronger import growth up RM29.3 billion or 37.3% to RM107.9 billion, a new record high, compared to exports up 30.5% y/y to RM120.5 billion.

For the first five months, total trade balance stood at RM101.1 billion or up 8.9% y/y, with exports amounting to RM592.9 billion or up 23.5% and imports stood at RM491.8 billion or up 26.9% y/y. Main driver for imports is still the intermediate goods. It grew by 34.1% y/ in May from 28.4% in April, bringing the five months average to 29.9% y/y. And the import has been growing at double digit pace for the past 14-months.

Key Takeaways

Strong growth from intermediate inputs – the parts and materials imported to make products for consumption domestically and abroad can be viewed positively. It is seen benefiting from a growing force in world trade and globalisation of production and heavy use of imported inputs for exports.

Other components of imports such as consumption grew by 19.3%yy in May to bring the five months average to 20.4% y/y while capital imports fell slightly by 0.8% y/y, bringing the average five months to 10.2% y/y.

And our import value growth was mainly due to higher value of purchases from countries including China, Singapore, Taiwan, the United States (US) and the European Union (EU).

With strong imports, this would certainly boost the economic activities both domestically and exports. This is reflected by our imports having surpassed the RM100 billion mark in April with May reading stood at RM107.9 billion. And our main imports are electrical and electronic products (48.0% y/y), chemicals (20.8% y/y), petroleum products (75.6% y/y) and machinery, appliances and parts (11.4% y/y) based on year-to-year changes.

That explains a continued strong E&E performance, grew by 45.4% y/y to average 30.8% for the first five months. We continue to benefit from the robust global semiconductor performance, especially from higher average selling price as exports volume faces headwinds from supply chain disruptions and labour shortages.

Other areas of exports that are seen benefiting from firmer prices as opposed to volume growth are petroleum products (81.2% growth, or by RM5.6bil), and palm oil-based manufactured products (74.7% growth, or by RM1.6bil)

On the whole, we believe the strong imports will bode well for the domestic economic activities, exports as well as forex earnings. Any singular focus on exports as engine of growth may be misleading. There is a strong positive impact between domestic economic growth with exports and imports as well as exports and imports.

On that note, we expect exports to grow by 26.0% in 2022 previously was 8.0% (26.0% in 2021) while imports by 25.0% % in 2022 previously was 10.0% (23.3% in 2021). Upwards revision was due to higher average selling prices which is seen compensating for any shortfalls from volume affected by supply disruptions and labour shortages.

For the full year of 2022, our base-case GDP growth projection remains unchanged at 5.6% with an upside of 6.0% while our downside is at 4.8%. Growth will be supported by the full reopening of economy and better vaccination management which will improve private consumption and business condition, and strengthened by the firm commodity prices, continuous robust exports and manufacturing upswing especially in the electrical & electronic (E&E) subsector.

Source: AmInvest Research - 20 Jun 2022