News

Malaysia’s gross export growth decelerated sharply to 0.6% yoy in July (Jun: +7.9% yoy), well below market expectation of a 5.3% yoy gain. Gross imports reversed to a 0.7% yoy contraction, the first decline since June 2013 (Jun: +9.0% yoy).

Trade surplus narrowed further to RM3.6bn from RM4.1bn in June, trending below the average RM5.9bn monthly trade surplus for 2013.

Almost all major export destinations experienced moderation in July, except for the EU (+8.9% yoy; Jun: +3.9% yoy). Japan registered the weakest growth, contracting 22.1% yoy (Jun: -2.6% yoy), followed by China (-14.4% yoy; Jun: -1.9% yoy), ASEAN (+1.7% yoy; Jun: +9.6% yoy), and the US (+4.5% yoy; Jun: +9.5% yoy).

Comments

The worse-than-expected export growth marks a weak start of export contribution to GDP growth in 3Q14. Shorter working hours during the Ramadhan month may have contributed somewhat to the weak set of numbers. Key culprits were exports of E&E products, LNG and machinery, offsetting the robust expansion in palm oil, crude oil and petroleum products.

E&E exports fell 1.0% yoy (Jun: +5.6% yoy) after growing for 12 straight months. July’s contraction was partly attributable to Raya festival and high base effect a year ago. Going forward, we expect E&E exports will grow at a more moderate pace, backed by continued expansion in global chip sales and ongoing business IT spending.

Exports of commodity-related products rose 10.1% yoy (Jun: +9.7% yoy). Overseas shipments of palm oil soared by 10.9% yoy (Jun: +4.2% yoy), crude oil was up 26.2% yoy (Jun: +24.5% yoy) while refined petroleum products surged 29.3% yoy (June: +8.7% yoy).

The sluggish import growth was pulled down by decline in capital goods (-17.9%; Jun: +15.1% yoy) and consumption goods (-9.0% yoy; Jun: +7.6% yoy). However, imports of intermediate goods continued to sustain its moderate growth pace (+2.6% yoy; Jun: +2.7% yoy).

July’s trade surplus reaffirmed our view that it would remain low ahead on the account of: (i) falling CPO export price (a decline of RM100/tonne in CPO export price will erode RM2.6bn from annual trade surplus); and (ii) expected increase in capital imports for Rapid projects in 2H14.

On top of that, the smaller export boost and weak imports of capital and consumption goods reinforce our expectation of a softer GDP growth of 5.6% in 2H vs. the 6.3% in 1H. 2014 full-year GDP growth estimate is maintained at 6.0%.

Besides the slower July loan activity and dovish ECB stance, subdued July trade numbers have again further reduced the odds of OPR hike on 18 Sep MPC meeting. We believe BNM will now take a more cautious stance between growth and inflation. The upcoming July IPI data will further ascertain the degree of GDP growth tapering into 2H, an influential factor for OPR decision on 18 Sep.

Source: Hong Leong Investment Bank Research - 8 Sep 2014