External Trade Grew 1.9% Y/y

Malaysia’s external trade grew 1.9% y/y in January 2023 to RM207.5 billion. Exports rose 1.6% y/y to RM112.8 billion (December 2022: 5.9%) and imports grew by 2.3% to RM94.7 billion (December 2022: 11.5%). Higher growth magnitude in imports translates into a narrowing trade surplus to RM18.2 billion from RM28.1 billion in the prior month. On month-on-month basis, exports declined by 14.4% m/m and imports also declined by 8.6% m/m. Tapering momentum in external trades reflects slower economic activity among our trading partners.

Slower Pace of Exports Growth

Overseas shipments grew at the slowest pace since October 2020, when it then grew by a marginal 0.4% y/y. On the positive note, exports of mining products rose sharply by 50.1% to RM10.2 billion as the demand for energy related commodities, particularly LNG (+62.3%) and crude petroleum (+25.9%) remained healthy hence benefiting Malaysia given its position as net exporter.

Exports of manufactured products declined slightly by 0.1%% to RM94.9 billion. Going by sub-segment, we observed the contractions in rubber products (-44.9% y/y), wood products (-40.6%), and metal (-34.9%). However, the upside support came from the shipments of petroleum products (+87.5%), optical & scientific equipment (+6.6%) and E&E products (+4.7%). On the other hand, agriculture exports declined by 19.8% to RM7.0 billion, outweighed by the lower exports of palm-oil and palm-oil based agriculture products.

Imports expanded 2.3% y/y to RM94.7 billion over the same period. On another note, we observed that imports of capital, intermediate and consumption goods declined by 1.7% y/y, 4.7% y/y and 3.9% y/y respectively, suggesting slower pace in the domestic economic activities.

Our Thought – Expect Modest Growth Going Forward.

Malaysia’s external trade posted a robust performance back in 2022, with a total trade of RM 2.9 trillion. This was due to the E&E segment and the global demand towards commodity-based exports especially natural gas and palm-oil.

We expect sales of E&E will be slower this year, reflecting the end of bullish tech cycle and slower demand from external fronts. Malaysia’s manufacturing PMI is in the contractionary territory since September 2022, and has been on a downward trend since then, reflecting pessimism from the external front. Latest PMI number (January 2023) was at the lowest level since the Covid-19 pandemic. Overall, we expect exports growth of 5-10% in 2023 as compared to 27.8% in 2022.

Tapering trade momentum is not unexpected as major economies are now dealing with the effect of policy tightening which saw steep increase in benchmark interest rates globally. We maintain our GDP projection of 4.5% in 2023 as downside risk brought by slowdown in global trades is expected to be mitigated by relatively robust domestic demand. Meanwhile, we view that the impact from the Turkiye’s earthquake on the Malaysian economy will be minimal, given that Malaysia’s overall trade share to Turkiye’s is only around 0.71%.

Source: AmInvest Research - 21 Feb 2023