• Exports recovered to 2.2% yoy; imports fell by 9.6% yoy in March
• Trade surplus widened to RM14.7bn, the highest trade balance ever recorded
• Export growth was supported by manufacturing and mining sector
• Exports slowed to 5.8% yoy; imports dropped 0.8% yoy in the 1Q18
• Mixed export growth among major countries
• Weak imports could reflect potential slowdown in demand

Malaysia’s export recovered to 2.2% yoy in March from -2.0% in February. Exports in March 2018 totalled RM84.5bn, the highest monthly export value ever recorded. The rise was primarily supported by manufacturing and mining sectors. Meanwhile, imports fell further by 9.6% yoy to RM69.8bn in March from -2.8% in February, the slowest import growth in history. As a result, trade surplus widened to RM14.7bn, the highest trade balance ever recorded as it breached more than RM14.0bn for the first time since September 2008. This also making it the 245th consecutive month of trade surplus since November 1997.

On monthly basis, export and imports rallied 20.1% (Feb: -15.1%) and 13.8% (Feb: - 16.2%) respectively. On seasonally adjusted terms, exports grew by 3.5% whilst imports decreased 2.1%, correspondingly.

Total trade in March 2018 decreased by -3.5% yoy to RM154.2bn as compared to RM159.8bn in the corresponding period of last year. For 1Q18 total trade amounted to RM441.9bn, grew by 2.6% yoy. Exports increased by 5.8% to RM237.6bn while imports fell by -0.8% to RM204.3bn. Trade surplus surged by 76.8% to RM33.4bn compared to the corresponding period of 2017.

Export was supported by manufacturing and mining sector

Exports recovered to 2.2% yoy in March after declined by -2.0% in the preceding month. The increase was propelled by manufacturing and mining sector.

Exports of manufactured goods increased by 3.7% yoy (Feb: 1.5%; Jan: 20.4%) to RM69.7bn and accounting for 82.6% of Malaysia’s total exports. The higher growth was supported by an improvement of exports in electrical and electronic (E&E) products, chemical products, metals, machinery and appliances. These four segments of manufactured products, collectively contributing 54.8% of total exports. Exports of E&E products rallied to 8.7% yoy (Feb: -0.1%; Jan: 27.1%) to RM31.8bn while chemical products rebounded by 7.8% yoy (Feb: -3.4%; Jan: 23.4%) to RM6.6bn.

Export of mining goods which held 9.2% share over total exports expanded by 1.5% yoy to RM7.8bn, mainly impelled by an increase in the export of crude petroleum. Exports of crude petroleum was up by double digit growth in March to 18.4% yoy or increased to RM3.6bn and accounting for 4.3% to the total exports. On the flipside, exports of liquefied natural gas (LNG) decreased for second consecutive months, down to -3.3% yoy following a 11.8% decline in February.

Exports of agriculture goods, which accounted for 7.2% of total exports, dropped by - 11.2% yoy (Feb: -23.3%) to RM6.1bn, mainly due to lower exports of palm oil which fell by 7.5% yoy to RM3.6bn (Feb: -24.0%). Shipments of other products; natural rubber, saw log, sawn timber and mouldings also decreased in March.

On quarterly basis, exports slowed to 5.8% yoy in the 1Q18 after posting a double-digit growth for fourth consecutive quarters (4Q17: 12.4%; 3Q17: 22.1%; 2Q17: 20.5%; 1Q17: 21.45). During 1Q18, exports of manufactured goods expanded by 8.2% to RM196.4bn compared to 1Q17, primarily led by exports of E&E products, manufactures of metal, chemicals and chemical products, transport equipment, iron and steel products as well as optical and scientific equipment. Exports of mining goods decreased marginally by 0.1% to RM21.2bn, mainly due to lower exports of metalliferous ores and metal scrap. Exports of agriculture goods contracted by 9.9% to RM17.8bn, on account of lower exports of palm oil and palm oil-based agriculture products as well as natural rubber.

Decrease in import growth was prompted by intermediate, capital and consumption good

• Intermediate goods, valued at RM36.9bn or 52.8% of total imports, declined 14.4%, following a decrease in imports of parts and accessories of capital goods (except transport equipment), processed fuel and lubricants, processed food and beverages mainly for industries and parts and accessories of transport equipment.

• Capital goods, valued at RM9.4bn or 13.5% of total imports, dropped by -30.5%, due to the decrease in both capital goods (except transport equipment) and transport equipment, industrial.

• Consumption goods, valued at RM5.3bn or 7.6% of total imports, fell by 12.4%, because of a decline imports of semi-durables, durables, non-durables and primary food and beverages mainly for household consumption.

During the first three months of 2018, imports amounted to RM204.3bn, declined by 0.8% from the corresponding period of 2017. Intermediate goods totalled RM107.4bn, decreased by 10.5%, capital goods totalled RM26.5bn, down by 13.0% and consumption goods valued at RM16.8bn, increased 2.3%.

Performance of major markets

On yearly basis, exports to G3 rose 0.9% mainly due to shipments to EU while exports to US and Japan declined. Exports to China fell for the second straight month by 4.7%. Exports to the ASEAN region declined 2.7%.

Trade with ASEAN in March 2018 which accounted for 27.4% of Malaysia’s total trade or RM42.3bn, contracted marginally by 0.3% yoy. Exports amounted to RM23.3bn, a decrease of 2.7%, on the back of lower exports of petroleum products. Imports from ASEAN expanded by 2.7% to RM19.0bn. In 1Q18, trade with ASEAN expanded by 2.2% to RM121.1bn compared to the same period of 2017. Exports to this region rose by 2% to RM67.8bn contributed mainly by E&E products. Imports increased by 2.4% to RM53.3bn.

Trade with China totalled RM22.4bn, contracting by 12.5% yoy and accounting for 14.5% of Malaysia’s total trade. Exports amounted to RM10.4bn, declining by 4.7% due to lower exports of petroleum products. Imports from China decreased by 18.3% to RM12.0bn. Trade with China in January-March 2018 expanded by 0.3% to RM68.9bn compared to the same period of 2017. Exports to China increased by 0.3% to RM29.2bn while imports from China increased by 0.3% to RM39.8bn.

Total trade with the US in March 2018 was RM13.2bn or 8.5% of Malaysia’s total trade, declining by 22.9%. Exports totalled RM7.9bn, decreased marginally by 0.1% whilst imports were down by 42.6% to RM5.3bn. In 1Q18 trade with the US amounted to RM37.6bn, contracting by 8.5% compared to 1Q17. Exports to the US rose by 3.7% to RM22.1bn and imports from the US decreased by 21.6% to RM15.5bn.

Malaysia’s trade with the EU in March 2018 increased by 3.6% yoy to RM16.0bn and accounted for 10.4% of Malaysia’s total trade. Exports was RM9.1bn, higher by 5.3% mainly due to manufactures of metal as well as chemicals and chemical products. Imports grew by 1.5% to RM7.0bn. In the first three months of 2018, trade with the EU grew by 11.4% compared to the corresponding period in 2017 to RM45.7bn. Exports increased by 5.2% to RM24.9bn and imports from the EU increased by 19.7% to RM20.8bn.

Trade with Japan in March 2018 which constituted 8% of Malaysia’s total trade or RM12.4bn, contracted by 4.8% yoy. Exports was RM6.7bn, lower by 3.5%, owing mainly to E&E products. Imports decreased by 6.3% to RM5.7bn. During the first three months of 2018, trade with Japan was RM34.4bn, a decrease of by 5.2% from the corresponding period a year ago. Exports to Japan amounted to RM19.3bn, contracting by 5.8% mainly on account of lower exports of E&E products and LNG. Imports from Japan declined by 4.4% to RM15.1bn.

Mixed export growth among major countries

Exports from China slumped 2.7% yoy in March after posting a significant increase of 44.1% in the prior month. It marked the first decline since February 2017 and left the country with trade deficit of USD4.98bn for the month. The export outlook is being clouded by an escalating trade dispute with the US, which could disrupt China's shipments and its supply chains. For the 1Q18, China’s export increased by 14.1% and China’s trade surplus with the US surged nearly 20% in the 1Q18, with some speculations that the exporters were rushing out shipments to get ahead of threatened tariffs that are spurring fears of a full-blown trade war. In contrast, exports from Japan rose by 2.1% yoy following a 1.8% rise in the preceding month. The expansion was supported by stronger shipments of machinery, manufactured goods and electrical machinery. Nevertheless, the export was below market expectation of a 5.2% increase as a stronger yen make their export less competitive as compared with other exporting countries.

Regionally, export data were mixed in March. Indonesia exports eased to 6.1% yoy from 12.0% increase posted in a month before. In contrast, Singapore’s non-oil domestic exports (NODX) continued to drop for second consecutive month. It fell by 2.7% yoy in March from -6.0% in the previous month. The decrease was mainly triggered by the cooling demand for electronics products, trade tension, high base effects and a stronger SGD. Whereas, exports from Thailand rose by 7.1% yoy in March after posting at 10.3% in February. Sales continued to increase for cars & parts, computers & parts and chemicals. Thailand’s exports for 1Q18 grew by 11.3% yoy, recorded a 7-year high and remains as a main driver of their economic growth.

Weak imports could reflect potential slowdown in demand

Ringgit rose 13.7% yoy to average 3.90 per USD in March and although the strength of ringgit played a role in the divergence of export and import performances in 1Q18, the plunge in March imports was more severe and could be reflective of concerns over USChina trade tensions.

Imports declined 9.6% yoy from -2.8% in February mainly due to broad-based drop in imports of intermediate goods (-14.4%), capital goods (-30.5%), and consumption goods (-12.4%). The decline in intermediate imports over four months could indicate moderation in future export momentum. Meanwhile, the decline in imports of consumption and capital goods was partly due to a high base but bears watching for signs of potential slowdown in domestic demand.

Moving forwards, downside risks to global trade linger amid on-going US-China trade policy developments. The market cannot accurately price in all the potential risks of trade wars, as it is difficult to do any kind of solid analysis of trade negotiation because there are so many potential outcomes. Indeed, little progress was made in trade talks between Beijing and Washington officials so far, as neither side could find common ground on sweeping demands. The US asked China to cut its trade surplus by USD200bn while the Chinese officials sought to get Washington to ease national-security reviews of Chinese investments. An inability to strike a deal could lead to retaliatory tariffs, the impact of which has been seen in some commodity prices already, such as steel and aluminium. Political and policy uncertainties, presenting major downside risks to the global growth.

The rise of protectionism among some major developed economies would hamper trade and immigration flows, and this in turn would have implications on production and income growth for some major economies. We maintain our gross exports and gross imports growth forecast of 6.3% and 6.0% respectively for 2018 albeit a slowdown in the technology sector alongside the high base effect will weigh on this year’s export outlook.

Source: BIMB Securities Research - 7 May 2018