Both the exports and imports performed modestly with exports up 3.4% y/y while imports rose 0.1% y/y in May, bringing the May trade surplus to RM8.1bil. The weak performance was partly due to the high base impacting both exports and imports. Besides, E&E as well as petroleum products slowed down while all the import components fell, added with a weaker growth from imports for re-exports.

We are not worried over the latest trade figures as the average growth in exports and imports for the first two months of 2Q2018 are 8.7% y/y and 4.6% y/y respectively, higher than the 6.0%y/y and -0.3%y/y reported in 1Q2018. Thus, we expect 2Q2018 GDP to stay strong with our preliminary estimates at 5.5%–5.6% from 5.4% in 1Q2018 supported by exports and private consumption following the removal of the GST in June, to be replaced with SST in September, and the spending for the GE14 on May 9. We reiterate that our 2018 GDP estimate at 5.5% is at the lower end of BNM’s forecast of 5.5–6.0%, and expect the policy rate to be left unchanged at 3.25% for the rest of 2018.

• Both the performance of exports and imports turned modest in May. Export rose 3.4% y/y in May from 14.0%y/y in April while imports edged up marginally by 0.1% y/y in May from 9.1% y/y in April. Hence, the trade surplus in May was RM8.1bil from RM13.1bil in April.

• The drag in exports was mainly due to the weak growth in the electrical and electronic (E&E) segment which makes up about 35.5% of total export. E&E rose at a weak pace by 2.1% y/y in May from 21.2% y/y in April. Besides, petroleum products exports climbed by 2.1% y/y in May from 16.8% y/y in April. Base effect also contributed to slower exports growth.

• At the same time, we believe the base effect also influenced imports growth. The drag came from imports for re-exports which grew by 21.4% y/y from a whopping 84.3% y/y in April. Also, imports of capital, intermediate and consumer goods fell in May by by 0.7% y/y, 5.3% y/y and 10.3% y/y respectively.

• We are not too concerned with the latest trade figures. We found the average growth in exports for the first two months of 2Q2018 is 8.7% y/y, which is higher than the 6.0% y/y reported in 1Q2018. Meanwhile, imports grew 4.6% for the same period of 2Q2018 compared to -0.3%y/y in 1Q2018. We believe the overall economic performance in 2Q2018 will remain strong.

• Our preliminary estimates show the 2Q2018 GDP would grow 5.5%–5.6% from 5.4% in 1Q2018 supported by exports as well as private consumption spending following the removal of the GST in June to be replaced with SST in September, as well as spending for the GE14 on May 9.

• We are maintaining our 2018 GDP estimate at 5.5%, which is at the lower end of BNM’s forecast of 5.5%–6.0%. Thus we expect the policy rate to be left unchanged at 3.25% for the rest of 2018.

Source: AmInvest Research - 6 Jul 2018