-  In June, Malaysia’s exports registered the fifth straight month of contraction owing to external weaknesses. Exports fellby 6.9% YoY (or +1.7% MoM) during the month vs. ours and street estimates of 4.6% and 7.4% respectively. On the other hand, imports had increased by 1.3% YoY (or -0.9% MoM) which resulted in a boost in terms of net trades to RM4.32bil during the month of June (May: RM2.88bil).

-  In terms of composition of exports, manufactured goods which represented 68.9% of total exports, had contracted by 5.9% in June. Particularly, the E&E segment had registered a steeper decline of 5.6% in June (May: -2.1%).

-  As of YTD, total exports fell by 3.8% as global sentiments deteriorated in 1H13 (YTD June 2012: +3.3%). Meanwhile, imports expanded by 4.4% YoY (YTD June 2012: +7.8% YoY) and total trade balance had registered a surplus of RM24.58bil (YTD June 2012: RM51.09bil).

-  Malaysia’s trade with the US had been weak during 1H13. Mainly, exports contracted by 3.8%, imports increased by 1.3%, and trade balance registered a surplus of RM4.17bil as of YTD. In comparison, exports/ imports/ trade balance had registered +4.6%/ -13.5%/ +RM5.61bil in 1H12.

-  Elsewhere, a slowdown in China during 1H13 had caused adrag on overall exports asMalaysia continues to register trade deficits with China since September last year. As of YTD 1H13, Malaysia’s trade with China was dragged down by a 5.8% decline in exports; an increase in imports by 13.3%; and a trade balance of -RM8.9bil.

-  Meanwhile, a patchy recovery in some parts of Europe and uncertainties in other debt-stricken economies within the region have resulted in trade weaknesses between Malaysia and the EU. As of YTD 1H13, Malaysia registered exports/ imports/ trade balance of -5.0% YoY / +10.8% / -RM4.28bil with the EU respectively.

-  As for the imports segment, we attribute its increase to higher imports of intermediate goods (+3.5% YoY) and consumption goods (+2.4%). However, capital goods posted a contraction of 5.7% YoY in part due to the weaker

Ringgit and thus, the relatively costlier foreign capital goods. The Ringgit had depreciated by an average 4.2% MoM to 3.144 per USD in June.

-  Malaysia’s overall trades had remained a drag on the economy in 2Q13 as nominal trade balance had moderated further to RM8.23bil from RM16.35bil in 1Q13. Thus, we do not anticipate net trades to have a significant contribution to GDP growth in 2Q13.

-  Based on our estimates, net exports could account for only 3.0% of GDP in 2Q13 vs. 6.3% in 1Q13. Ahead of the GDP statistical release on Aug 21, we envisage a growth of 4.4% in 2Q13 (instead of our previous estimate of 4.9%). The expansion in 2Q is expected to be driven by a relatively strong domestic demand growth of 9.3% in 2Q13 (instead of our previous estimate of 9.9%) as compared to 8.2% in 1Q13. With that, we are lowering our full-year GDP projection by 0.7ppt to 4.6% for 2013.

-  Going forward,we do anticipate an uptick in global demand when the US economy gains traction. Elsewhere, recent statistics from China suggest that the economic slowdown may be stabilising after official manufacturing and services surveys showed faster expansion in July

Source: AmeSecurities