• Total trade continued to decline albeit at slower pace of -2.4% YoY

• Export contracted at a slower pace of -4.4% YoY

• Imports were down by 0.2% YoY

• Trade surplus edged lower to RM12.9bn in October

• Global exports grow at a slower pace

• The expected rebound in tech cycle could support exports recovery in 2024

OVERVIEW

Summary

Malaysia's trade in October 2023 continued its downward trend for the 8th consecutive months since March 2023 amid slowing global demand and lower commodity prices. Total trade fell by 2.4% to RM239.5bn ascribable to lower exports of 4.4% to RM126.2bn and imports of 0.2% to RM113.3bn, year-on-year. Meanwhile, trade balance remained in surplus with a value of RM12.9bn, marking the 42nd consecutive month of trade surplus since May 2020 but shrank by 30.3% YoY in October. On a month-on-month basis, Malaysia’s trade in October expanded by 6.8%. Exports increased by 1.5% and imports registered a double-digit growth of 13.4%.For the period of January to October 2023, trade surpassed the RM2tn mark, reaching RM2.2tn. Exports amounted to RM1.2tn, while imports were valued at RM995.6bn. Trade, exports and imports each posted an 8% decrease compared to the corresponding period last year. Trade surplus was lower by 7.9%, amounting to RM190.04bn. We continue to see the slowdown to extend towards the end of the year as the base effect persists. Nevertheless, growth contraction is expected to ease as the high base effect dissipates. However, we keep our cautious outlook on the external sector, as we expect demand to be weighed by a higher interest rate environment.

Exports contracted at a slower pace. Malaysia's export performance recorded a reduction in October and eased by -4.4% in line with the decline by both reexports and domestic exports. Re-exports amounted to RM29.8bn, shrank by 2.2% YoY. Domestic exports worth RM96.4bn, contributing 76.4% to total exports dropped by 5.0% YoY. Meanwhile, on a month-on-month, exports increased by 1.5% or RM1.9bn and on the seasonally adjusted terms, exports weighed up marginally at 1.6% MoM to RM121.7bn.

Overall, the continued, but slower decline in exports reflected smaller contractions in the exports of manufacturing (Oct: -3.5%; Sep: -11.8%; Aug: - 17.7%) while export of agriculture recovered (Oct: +3.3%; Sep: -23.1%; Aug: - 27.2%). However, mining exports still registered double-digit drop (Oct: -21.9%; Sep: -28.0%; Aug 2023: -23.3%).

Exports of manufactured goods, constituting 85.3% or RM107.6bn of total exports, slipped by 3.5% YoY as a result of lower demand for petroleum products (Oct: -23.7%; Sep: -37.9%) as well as electrical and electronic (E&E) products (Oct: 2.3%; Sep: -5.3%). Other products that contributed to the declined includes palm oil-based manufactured products (-15.1%), iron & steel products (-8.6%) and chemical & chemical products (-2.5%). However, exports of transport equipment, processed food, machinery, equipment and parts as well as wood products registered expansion.

Exports of agriculture goods (7.1% share) improved by 3.3% YoY to RM8.9bn, marking its first positive growth after twelve consecutive months of decline. The main contributor to the increase was other agriculture which jumped 39.2%. Meanwhile, exports of palm oil & palm-oil based agriculture products decreased (Oct: -0.8%; Sep: -24.7%).

Exports of mining goods (6.9% share) dipped by 21.9% YoY to RM8.8bn attributed to lesser exports of LNG (Oct: -34.9%; Sep: -37.8%), mirroring with the decrease in export volume (Oct: -6.9%; Sep: -9.7%) and average unit value (Oct: -30.0%; Sep: -31.1%). Meanwhile, crude petroleum export was dragged down (Oct: -22.3; Sep: -13.9%) along with the average unit value (Oct: -8.7%; Sep: - 19.9%) and export volume growth (Oct: -14.8%; Sep: +7.4%).

On a month-on-month basis, exports of agriculture and mining goods rose by 10.7% and 10.4%, respectively while exports of manufactured goods declined marginally. For the period of January to October 2023, exports of manufactured goods weakened by 6.3%, exports of mining goods declined by 12.8% and exports of agriculture goods dropped by 23.0%.

In terms of destinations, exports to the ASEAN region edged down by 5.7% following exports decline to Singapore (-8.8%), Thailand (--21.3%) and Indonesia (-10.1%). In contrast, exports to the Philippines (+20.4%) and Vietnam (+11.6%) recorded positive growth during the month. Exports to China eased by 7.0% YoY (Sep: -17,3%) while exports to Japan plunged by 23.4% (Sep: 25.4%). Exports to the United States picked up by 4.0% (Sep: -9.3%), marking a turnaround after two successive months of decline, driven mainly by exports of transport equipment, manufactures of metal as well as machinery, equipment and parts, while exports to the EU declined slightly by 0.1% (Sep: 8.3%).

Imports of intermediate good remained in contraction. Total imports in October contracted marginally by 0.2% YoY or RM193.1mn to RM113.3bn. On a monthly basis, imports expanded by 13.4% or RM13.4bn.

Imports fell for the eighth month, but the slower declined was supported in the turnaround in the imports of consumption goods amounted to RM9.4bn, posted an increase of 9.9% or RM847.0mn and capital goods with a value of RM12.7bn, rose by 8.6%. However, slower demand for intermediate goods remained with a decrease of 7.9% to reach RM55.9bn as against RM60.7bn in the previous year.

Manufactured products which constituted 84.0% of total imports, increased by 1.7% YoY to RM95.2bn. Imports of mining products (9.2% of total imports) recorded a double-digit declined of 16.5% YoY or RM2.1bn to RM10.4bn. Imports of agriculture products increased by 2.8% YoY or RM155.6mn to RM5.8bn.

During the period of January to October 2023, imports weakened by 8.0% YoY to RM995.6bn. Imports of intermediate goods dropped by 14.8%, capital goods imports increased 1.1% and imports of consumption goods declined marginally -0.1%.

Lower trade surplus. Trade surplus reached RM12.9bn, marking the 42nd consecutive month of trade surplus since May 2020. For the period of January to October 2023, trade surplus was lower by 7.9% YoY, amounting to RM190.0bn.

Global exports grow at a slower pace

Global exports fell at a slower pace in October, raising some hopes that the key trade engine of the economy is starting to turn a corner though doubts remain over weak global demand.

China’s exports unexpectedly weakened despite a more favorable base effect and this pushed the contraction in exports to stretch into its sixth consecutive month. Exports data for October showed that China’s exports (in USD) fell by 6.4% YoY in October. Overall, China’s exports have fallen on a year-on-year basis every month this year starting in May. Year-to-date as of Oct, China’s exports contracted by 5.6% YoY. Exports from Japan increased by 1.6% YoY in October. The increased marked the second straight month of export growth, but the climb slowed from 4.3% in September. This could be bad news for Japan, which heavily depends on export manufacturing to drive growth.

Meanwhile, ASEAN’s trade-reliant economy continued its trend of improvement in exports. Singapore’s October NODX fell for the 13th consecutive month, albeit by a smaller-than-expected 3.4% YoY and actually rebounded 3.4% MoM sa. Both electronics and non-electronics exports contracted less due to a low base. Notably, electronics exports contracted a narrower 5.6% YoY in October, compared to -11.6% in September, and marked the smallest decline since August 2022 (-4.5% YoY) even though this is still the 15th consecutive month of contraction. Non-electronics exports also eased to a 2.7% YoY decline in October, compared to a 13.7% YoY drop in September, but still marked the 13th straight month of contraction. Indonesia’s export in October rose 6.7% MoM but still contracted by 10.4% YoY, improved than previous month’s contraction of 16.2% YoY.

OUTLOOK

Malaysia’s exports saw a material improvement, with the contraction narrowing further to -4.4% YoY in October from September’s print of -13.7%. However, this still marks the 8th straight month of exports contraction following 30 months of unabated expansion. Meanwhile, on the monthly basis exports remained positive and increased 1.5% MoM. In the first ten months of 2023, exports declined by 7.2% while imports edged down by 7.0%.

We maintain our 2023 forecast for both exports and imports at -7.0% and -7.5%, respectively. If this materializes, this would still be the worst annual performance since 2020 (exports: -1.1% YoY; imports: -5.8% YoY), but at least the recent data suggest that the global electronics cycle may have bottomed and is looking to stabilize in the months ahead. For 2024, Malaysia’s export growth may rebound to 4.1% YoY, partly due to the low base in 2023 and assuming that the global economy may still see a modest slowdown in some of the major economies like the US and rangebound growth prospects in China, albeit the global electronics industry should be stabilizing after the current de-stocking cycle.

Electronics trade cycle has likely bottomed with recovery in the next few quarters supported by base effects. The E&E exports exhibited incrementally narrower contractions (Oct: -2.3%, Sep: -5.3%, Aug: -15.5%). In addition, export performance in the electronics/semiconductor powerhouses (South Korea and Taiwan) continued to record improvements, as South Korea exports saw the first positive YoY reading since September 2022, expanding 5.1% in October although Taiwan’s exports fell back into contraction, declining -4.5% YoY in October, a reversal from its positive 3.4% YoY print in September.

There have been signs of stabilization in global manufacturing activities which would support overall exports recovery, but we expect lower commodity exports will continue to be a drag to exports performance in the coming months. In 2024, recovery in the external trade will largely be driven by base effects given the sharp downturn in 2023, with headwinds persisting given the still weak external backdrop on tight financial conditions stemming from an elevated interest rate environment. We keep our cautious outlook on the external sector, as several downside risks could derail near-term trade outlook such as the recent escalation in geopolitical tensions and uptrend in commodity prices.

Source: BIMB Securities Research - 21 Nov 2023