• Exports decelerated to 3.4% yoy; imports eased to 0.1% yoy in May

• Trade surplus narrowed to RM8.1bn

• Deceleration in export mainly impelled by agriculture and manufacturing sector

• Regional exports data remained strong

• Brewing trade tensions could be a headwind to global trade

Malaysia’s export decelerated to 3.4% yoy in May after recorded a double-digit growth of 14.0% yoy in the preceding month. The slower growth in May was mainly due to continuous and larger contraction in agriculture sector as well as lesser export gain in manufacturing sector. Meanwhile, imports still registered a growth, however at a tepid pace of 0.1% yoy during the same month from 9.2% in April. As exports growth continued to outperform imports for the fifth consecutive month trade surplus of RM8.1bn was recorded, making it the 256th consecutive month of trade surplus since November 1997.

On monthly basis, exports dropped by -2.5% following a 0.3% contraction in the preceding month. Nevertheless, imports increased by 3.9% mom in May from 2.1% in April. On seasonally adjusted terms, exports and imports fell by 3.3% (Apr: 9.5%) and 1.7% (Apr: 8.8%) respectively.

Total trade in May 2018 eased to 1.8% yoy to RM156.1bn as compared to RM153.3bn in the corresponding period of last year. For the first five months of 2018, total trade amounted to RM753.5bn, grew by 4.2% yoy. Exports increased by 6.9% to RM404.0bn while imports rose by 1.3% to RM349.5bn. Trade surplus was up by 64.9% to RM54.5bn compared to the corresponding period of 2017.

Deceleration in export mainly impelled by agriculture and manufacturing sector

Exports in May remained above the RM80bn mark, totalling RM82.1bn, a 3.4% yoy growth after a 14.0% significant increase posted in the preceding month. The slower growth was majorly impacted by deterioration in agriculture export coupled with a tapering in manufacturing sector.

Exports of agriculture goods continued to decline in May and marked the fifth consecutive months of negative growth. Agriculture, accounted for 6.6% of total exports, declined by -21.9% yoy in May to RM5.4bn. The contraction in exports was broad-based in agriculture’s components; namely palm oil (May: -24.2%; Apr: 0.2%), sawn timber & mouldings (May: -10.9%; Apr: -6.7%), natural rubber (May: -19.1%; Apr: -42.6%), saw log (May: -37.0%; Apr: 8.6%) and others (May: -18.4%; Apr: -3.5%).

Exports of manufactured goods eased to 3.2% yoy in May (Apr: 16.8%; Mar: 3.7%) to RM68.8bn and accounting for 83.8% of Malaysia’s total exports. The impeded growth in May was driven by a moderation of exports in the major sub sectors of manufacturing goods; electrical and electronic (E&E) products (May: 2.1%; Apr: 21.3%), petroleum products (May: 1.7%; Apr: 16.8%), and chemical products (May: 14.6%; Apr: 17.8%). Furthermore, the export for machinery and appliances fell by 11.5% yoy after increasing at 3.9% in April. These four major components collectively contributed 54.9% of total exports. Exports of E&E products were recorded lower, valued at RM29.2bn whilst petroleum products stood at RM8.1bn.

Nevertheless, export of mining goods which held 8.6% share over total exports surged by 40.0% yoy to RM7.1bn, mainly driven by a rise in the export of crude petroleum and liquefied natural gas (LNG). Exports of crude petroleum continued to post double digit growth in May which spiked by 45.8% yoy (Apr: 22.7%) or RM3.1bn and accounting for 3.8% to the total exports. Exports of LNG rebounded in May 2018 with a double digit growth of 61%, after registering 3 consecutive months of yoy decline since February 2018. (Apr: -12.5%, Mar: -3.3%, Feb: -11.8%).

Slight increase in import growth was propelled by a decline in intermediate, consumption and capital good

• Intermediate goods, valued at RM40.1bn or 54.1% of total imports, declined 5.3%, following a decrease in imports of parts and accessories of capital goods (except transport equipment), processed industrial supplies, and processed fuel & lubricants. Nonetheless, primary fuel & lubricants rose by RM2.2bn or 125.4%.

• Consumption goods, valued at RM6.0bn or 8.1% of total imports, fell by 10.2% because of declined imports of semi-durables, primary food and beverages mainly for household consumption and non-durables.

• Capital goods, valued at RM9.8bn or 13.3% of total imports, decreased by 0.7%, due to the decline in capital good (except transport equipment). However, industrial transport equipment surged by 105.6%

Performance of major markets

The slowdown in exports was contributed by a moderation in shipments to China and the EU, while shipments to the US and ASEAN plunged. A rebound in shipments to Japan, however, provided some mitigation.

Trade with ASEAN accounted for 26.8% of Malaysia’s total trade slipped by 1% yoy to RM41.8bn in May. Exports amounted to RM23.7bn, a decline of 1.9%, whilst imports from ASEAN rose by 0.1% to RM18.1bn. Exports to Singapore contracted by RM1.2bn and exports to Thailand expanded by RM757.4m.

Exports to China amounted to RM11.5bn, increased by 7.4% due to higher exports of manufactures of metal as well as chemicals and chemical products. Imports from China were up by 7.8% to RM15.6bn. Overall trade with China which absorbed 17.4% of Malaysia’s total trade expanded by 7.7% yoy to RM27.1bn.

Trade with the EU in May increased by 4.6% yoy to RM15.9bn and accounted for 10.2% of Malaysia’s total trade. Exports increased by 11.4% to RM8.9bn, driven by higher exports of manufactured goods. Imports declined by 3% to RM6.9bn.

Exports to the US totalled RM7.0bn, decreasing by 5.6% yoy in May due to lower exports of E&E and petroleum products. Imports declined by 35.1% to RM4.6bn. Total trade with the USA recorded a contraction of 20% to RM11.6bn or 7.4% of Malaysia’s total trade.

Trade with Japan which constituted 6.7% of Malaysia’s total trade or RM10.5bn, rose by 7.1% yoy. Exports to Japan rebounded by 16% yoy growth to RM5.6bn after registering 3 straight months of negative growth. The increase was attributed mainly to higher shipments of LNG to Japan. Imports from Japan were lower by 1.5% to RM5.0bn.

Regional exports data remained strong

Malaysia’s exports underwhelmed relative to the region’s export performance. Indonesia’s May exports rose strongly by 12.5% yoy, compared to an upwardly revised 9.6% yoy rate a month ago. Singapore’s non-oil domestic exports (NODX) grew surprisingly stronger at 15.5% yoy in May from 11.8% y/y in April. On a mom SA basis, NODX expanded 10.3% in May, accelerating from April’s 6.5% increase. NODX growth in May was again supported by the robust expansion in the non-electronic exports segment (+26.2% yoy from +19.6% in April), which offset another yoy decline in electronics exports (-7.8% yoy from -6.9% in April). Electronics NODX has been on the decline for the 6th consecutive month, since Dec 2017. Exports from Thailand rose by 11.4% yoy to USD22.2bn in May after a 12.3% gain in April.

China’s export and import growth came in above-expectation in May. In USD terms, May exports rose 12.6% yoy (Apr: 12.9% yoy) and imports were up 26.0% yoy (Apr: 21.5%). The trade surplus narrowed slightly to USD24.9bn in May from USD28.8bn in April. In CNY terms, export and import growth were at 3.2% yoy (Apr: 3.7%) and 15.6% yoy (Apr: 11.6%) respectively in May. The difference in trade performance in CNY and USD terms reflected stronger CNY against USD compared to the same period a year ago. That the export growth has rebounded and continued to hold up in May after March’s contraction has provided some relief and signalled support to China’s growth in 2Q18 from a resilient external demand. The key risk is still on the US-China trade tensions. Overall, China recorded trade surplus of USD102.4bn YTD, down from USD144.9bn in the same period of 2017. However, the trade surplus with US has grown to USD105.0bn YTD from USD92.9bn in Jan-May 2017 despite the trade tensions. Meanwhile, Japan exports rose by 8.1% yoy in May, above 7.8% gain in the prior month, marking the strongest growth in 4 months despite rising trade tension.

Brewing trade tensions could be a headwind to global trade

For the first five months of 2018, exports are up 6.9%. The deterioration in May’s trade numbers indicates that trade volumes have dampened since 1Q amid a slowdown in global economic activity and growing concerns over US-China trade tensions. Forwardlooking indicators suggest choppy to slower export growth in 2H18. Global manufacturing PMI continues to slide while Emerging Market risks escalate amid mounting trade tensions and higher global interest rates. Malaysia’s latest manufacturing PMI suggested lacklustre manufacturing demand. Meanwhile, imports of intermediate goods, a precursor of future exports, contracted for six straight months.

Given the cloudy start to 2H, we are maintaining our 2018 exports projection at 6.3% yoy. We are watchful of the potential negative spillovers from the US and not only China trade tensions but also Europe on top of escalating geopolitical tension could be a headwind to global trade. Although there are potential areas that Malaysia may benefit due to the diversion of trade flows, the broader picture remains negative should more countries resort to retaliatory tariffs. Markets will now be bracing for further developments on trade and investment after the first wave of tariffs imposed by the US and China, which takes place on 6 July.

Source: BIMB Securities Research - 6 Jul 2018