• Exports accelerated by 9.4% yoy; imports moderated to 10.3%

• Trade surplus widened to RM8.3bn after narrowing for three straight months

• Sturdy export was driven by manufacturing and recovery in mining sector

• Global trade activities remain upbeat despite trade tension

• Cautious on global trade tension and rising trade protectionism

Malaysia’s export accelerated by 9.4% yoy in July to RM86.1bn from 7.9% in the preceding month. The robust export in July stems from higher exports of electrical and electronics (E&E) and crude petroleum. Nevertheless, imports moderated by 10.3% to RM77.8bn yoy after rising 15.9% in the prior month. However, both imports and exports reached new record highs value in July 2018 and imports growth outperformed export for the second consecutive month. The trade surplus rebounded by 1.7% to RM8.3bn in July after yoy decline of 41.1% in June. (Jun: RM6.0bn; May: RM8.1bn; Apr: RM13.0bn; Mar: RM14.7bn).

On monthly basis, exports turned around to grow by 9.6% in July after contracting for three months in a row since April 2018 (April: -0.3%, May: -2.5% and June: - 4.3%). Imports also recovered by 7.2% rise after falling 1.9% in the prior month. On seasonally adjusted terms, exports and imports grew by 11.8% (Jun: -5.4%) and 3.8% (Jun: 0.3%) respectively.

Total trade in July 2018 rose 9.8% yoy to reach all-time high value of RM163.95 billion. The expansion was supported mainly by higher trade with China, Hong Kong, Taiwan, ASEAN, India and Saudi Arabia. For Jan-Jul 2018 period, total trade expanded by 6.1% yoy to RM1.069tn. Exports accelerated by 7.3% to RM568.7bn while imports grew at a slower pace of 4.8% to RM499.9bn. Trade surplus for this period surged by 29.7% to RM68.8bn compared to the corresponding period of 2017.

Sturdy export was buttressed by manufacturing and recovery in mining sector

The better export growth in July 2018 was mainly underpinned by the robust growth in manufacturing sector as well as the recovery in mining sector. In contrast, agriculture sector continued to decline for seventh consecutive month, which started in February 2018 and subsequently saw double-digit decline for three months in row.

Exports of manufactured goods rose by 12.6% yoy in July (Jun: 12.7%; May: 3.2%) to RM72.8bn and accounting for 84.6% of Malaysia’s total exports. The sturdy growth in July was driven by the increase in the following sub-sectors in manufacturing goods; electrical and electronic (E&E) products (Jul: 23.6%; Jun: 6.8%), chemical products (Jul: 19.3%; Jun: 31.6%), manufactures of metal (Jul: 23.3%; Jun: 42.9%), machinery & appliances (Jul: 2.0%; Jun: 10.4%) and optical & scientific equipment (Jul: 9.1%; Jun: 31.2%). These five components collectively contributed 57.7% of total exports. However, the growth for these sub-sectors moderated in July as compared to last month’s gain. Furthermore, the petroleum product fell by 13.0% yoy in July after expanding significantly by 33.0% in last month.

Mining goods which held 8.5% share over total exports surged by 9.3% yoy to RM7.3bn in July after decreasing 10.9% in the previous month. The significant recovery in July was primarily triggered by the improvement of export in crude petroleum which spiked by 90.1% yoy in July following 25.3% rise in June. It held 4.4% of total exports. In contrast, liquefied natural gas (LNG) and tin fell by -36.2% and -2.3% respectively.

Exports of agriculture goods declined further in July by -14.7% to RM5.5bn from -18.7% recorded in the preceding month. This sector accounts for 6.4% of total exports. The decline was mainly pulled down by the lower export of palm oil which dropped by -23.3% yoy in July. The export of saw log also showed a significant decline as it fell by -44.8% yoy.

Increasing import of consumption goods and capital goods offset a decline in intermediate goods

Imports advanced 10.3% yoy, with gains in imports of consumption and capital goods, signalling resilience in domestic demand.

• Consumption goods, valued at RM6.7bn or 8.6% of total imports, grew by 11.1% because of increased imports of semi-durables, durables and non-durables.

• Capital goods, valued at RM9.6bn or 12.4% of total imports, increased by 4.7%, due to the gain in both industrial transport equipment and capital good (except transport equipment)

• Intermediate goods, valued at RM39.9bn or 51.2% of total imports, declined 0.1%, following a decrease in parts and accessories of capital goods (except transport equipment)

Performance of major markets

Exports to G3 declined for a second month with Japan being the key deterrent. Exports to Japan declined by 17.1% yoy to RM5.4bn following weaker shipments of LNG and E&E products. While exports to EU grew at a slower pace of 2.2% yoy, exports to US rebounded by 6.7% yoy, reversing the negative yoy growth registered for the previous 2 months, which was underpinned by higher exports of optical & scientific equipment, machinery, equipment & parts, manufactures of metal, as well as crude petroleum. Overseas shipments to China remained strong and recorded the highest monthly export value of RM12.9bn, surging 37.5% yoy, the highest annual growth rate in 14 months, due to higher exports of E&E products, chemicals & chemical products, LNG, petroleum products, and crude petroleum. Exports to ASEAN amounted to RM24.6bn, an increase of 1.2%, due to higher exports of E&E products, chemicals and chemical products, transport equipment as well as manufactures of metal.

Global trade activities remain upbeat despite trade tension

Malaysia’s external trade performance in July indicates steady regional as well as global demand. Exports growth snaps back strongly to 9.4% yoy in July from 7.9% in June.

Singapore’s July non-oil domestic exports (NODX) registered a stronger-than-expected growth at 11.8% yoy compared to revised 0.8% growth in June. The faster NODX growth in July was solely due to the growth in non-electronic exports (18.8% yoy) which outweighed the 3.8% yoy decline in electronic exports. Indonesia recorded stronger export growth of 19.3% yoy in July (June: 11.5%), led by higher growth in non-oil & gas exports, while oil & gas exports moderated. Thailand exports increased 8.3% yoy in July, slightly higher from June’s 8.2% yoy increase. Exports from Japan increased by 3.9% yoy to JPY6.8tn in July, down from a 6.7% rise in June

China’s exports growth unexpectedly accelerated in July despite fresh US tariffs, while its trade surplus with the US remained near record highs as Beijing and Washington ramped up a bitter dispute that has rattled financial markets. In USD terms, China’s exports grew 12.2% yoy in July (Jun: 11.3%) while in CNY terms, export growth also strengthened to 6.0% yoy (Jun: 3.1%). YTD, China recorded export growth of 12.6% yoy which was wellahead of 8.3% yoy in the same period of 2017. China’s closely watched surplus with the US dipped only slightly to USD28.1bn in July from a record USD29.0bn in June.

On the other hand, the US trade deficit widened for the second straight month in July, reaching the highest level since February, as imports hit an all-time high. The deficit in goods with China and the European Union sets records. The deficit in goods and services rose to USD50.1bn in July from a revised USD45.7bn in June. Exports slipped 1.0% mom to USD211.1bn while imports increased 0.9% mom to a record USD261.2bn. The deficit rose despite efforts by President Donald Trump to bring it down by renegotiating trade agreements and imposing taxes on imports. The goods deficit with China rose 10% in July to a record USD36.8bn while the gap with the EU shot up 50% to a record USD17.6bn.

Cautious on global trade tension and rising trade protectionism

We are maintaining our 2018 exports projection at 6.3% yoy. We believe that there are more downside risks on the horizon and remain cautious as US-China trade tensions could cloud the global trade outlook and have potential negative spill overs on broader trade. Meanwhile, imports could slow further following the suspension of mega projects and weaker ringgit.

Risk aversion remains at the forefront of the current market sentiment. Prolonged trade tensions around the global economy and the new risk that investors are attacking those markets belonging to currencies with high account deficits is playing a leading role behind the dent in market sentiment. A negative vibe continues to linger in the vicinity ahead of looming US tariffs on USD200bn worth of Chinese goods, while uncertainty over NAFTA talks have left global sentiment extremely cautious.

Going forward, the effect of global trade war as well as uncertainty on the price effect following the implementation of SST in September is expected to have important impact to growth momentum for external demand and domestic spending. The main concern currently is the growth prospect and in particular, the uncertainty on the trade war will continue to be the wild card in order to gauge the turning points of Malaysia’s manufacturing productions and exports. This is especially true when the trade friction between the US and China appears to be unlikely to resolved in the near term.

Source: BIMB Securities Research - 6 Sept 2018