External Trade Rose by 11% to RM205 Billion

Malaysia’s total trade grew 11.0% y/y in February 2023 to RM205.0 billion, with exports expanding 9.8% y/y to RM112.3 billion (January 2023: 1.4% y/y) and imports grew 12.4% y/y to RM92.7 billion (January 2023: 2.2% y/y). On month-tomonth basis, both exports and imports declined 0.3% m/m (January 2023: -14.5% m/m) and 1.9% m/m (January 2023: -8.8% m/m) respectively. This resulted in wider trade surplus of RM19.5 billion from RM18.1 billion in the previous month.

Manufacturing and Mining Were Doing Well During the Month

From sectoral standpoint, the shipments of manufactured products rose 9.5% y/y after a decline in the previous month (January 2023: -0.3% y/y). The gain was mainly contributed by export of petroleum products which grew by 67.5% y/y (January 2023: 87.5% y/y), E&E products by 11.7% y/y (January 2023: 4.9% y/y), and processed foods by 15.3% y/y (January 2023: -10.2% y/y).

Mining sector also clocked in a healthy growth figure of 34.8% y/y (January 2023: 50.1% y/y), marking the 23rd straight months of double-digit expansion since April 2021. We noticed that the global demand towards Malaysia’s exported LNG remain robust with 32.9% y/y growth (January 2023: 62.3% y/y), followed by crude oil at 50.6% y/y (January 2023: 25.9% y/y). This could reflect continuous activities on global front hence should help to mitigate a sharp downturn in overall economic momentum.

On the other hand, shipments of agriculture products contracted 19.8% y/y (January 2023: -0.4% y/y) with demand declining across all sub-sector goods; natural rubber at 33.1%, saw log at 29.4%, sawn timber & mouldings at 29.0%, and palm-oil & palm-oil based products at 13.8%.

Imports Supported by Intermediate and Consumption Goods

Imports of intermediate goods came in at 3.3% y/y (January 2023: -4.2% y/y) and consumption goods at 1.2% y/y (January 2023: -4.8% y/y). Nonetheless, the decline of Malaysia’s demand on capital goods at 0.3% y/y (January 2023: -1.9% y/y) could also be a sign that businesses are becoming cautious in expansion amidst elevated level of global uncertainties as well as higher interest rate environment. That said, it is worth noting that in the case of Malaysia, adjustment in monetary policy since the full re-opening of the economy in 2022 has been gradual, hence we view it as still accommodative as compared to steeper interest rate increases that transpired among major economies.

ASEAN & China Remain Malaysia’s Biggest Trading Partner

ASEAN and China continue to be the country’s major trading partner. Trades with ASEAN which comprised of 27.4% from the total pie, rose by 10% y/y to RM56.1 billion with exports gaining across all members except for export to Vietnam. Total trade with China meanwhile, stood at RM33.8 billon during the month, representing about 16.5% of total trades. As China economic activities gaining traction following the end of zero-COVID policy, we observed higher growth of imports from China at 15.2% y/y (January 2023: -4.9% y/y) and assuming the momentum continues, we expect China to continue to lend support to sustain growth in 2023. Meanwhile, Malaysia’s trade deficit with China narrowed to RM51.0 billion as compared to RM70.6 billion in January 2023. At the same time, Malaysia’s trade surplus with Singapore narrowed to RM88.4 billion from RM94.8 billion but widened with the US at RM57.8 billion from RM53.7 billion.

Our Take

Despite the faster growth seen on the headline data, we continue to hold on to a view of moderate export growth for the year as the global economy continues to deal with cumulative effect of higher interest rates. Furthermore, Malaysia manufacturing PMI rebounded in February 2023, but still remain under the contractionary territory. The survey also cited that new export orders continued to slow due to fragile external demand.

The recent banking crisis in the US adds more to downside risk to overall global growth outlook in the event that it starts to affect real economic activities. On that note, we see swift action by the regulators in ensuring liquidity continue to be available as a positive sign to avoid excessive risk aversion. In relation to this, the banking crisis in Europe, although is independent to the one in the US, further put investors on alert. Tightening in financial condition because of the recent global banking turmoil episodes have changed the landscape of interest rate expectations particularly in the US. Should the US Fed Reserve tone down on its forward-looking guidance, then this should help to reduce concerns on overtightening, and this coupled with China’s reopening, should be supportive of overall economic outlook.

Source: AmInvest Research - 21 Mar 2023