News

• Gross export growth moderated sharply to +10.0% yoy in Jun (May: +32.5% yoy), slower than median estimate of +18.3% yoy. Import growth decelerated at a faster pace to +3.7% yoy (May: +30.4% yoy).

• The sharper deceleration in imports led to higher trade surplus of RM9.9bn (May: RM5.5bn).

• Exports to all major countries except Japan grew at a slower pace. By destination, slower growth was recorded in US (+1.8% yoy; May: +16.0% yoy) and China (+27.3% yoy; May: +51.4% yoy). This was partly offset by faster expansion in Japan (+24.4% yoy; May: +12.7% yoy).

Comments

• The slower growth in exports emanated from broad-based moderation across both commodity and manufacturing sectors.

• Export growth of commodity-related products weakened to +16.7% yoy (May: +49.8% yoy), while manufactured exports grew at a slower pace of +8.1% yoy (May: +27.8% yoy). On commodities front, all prices of major commodities moderated due to base effect. Export price of crude petroleum grew by single digit pace of +9% yoy (May: +31.5% yoy) while that of palm oil products moderated to +6.7% yoy (May: +10.8% yoy). Export price of refined petroleum products also slowed to +22.2% yoy (May: +31.5% yoy). Meanwhile, export volume of crude petroleum and refined petroleum deteriorated sharply (- 9.2% yoy & -31.0% yoy respectively; May: +19.2% yoy & +33.7% yoy respectively). Only LNG export volume rebounded to +27.0% yoy following higher export demand to Japan and China.

• Manufactured export growth slowed to +8.1% yoy (May: +27.8%). This was driven by slower growth in E&E sub sector which grew by +15.1% yoy (May: +31.3% yoy), slower expansion in chemical products (+4.5% yoy; May: +21.0% yoy) and stagnant growth in machinery (+0.1% yoy; May: +17.0% yoy).

• Capital import growth continued to moderate to +0.6% yoy (May: +6.5%), the third consecutive month of moderation after stellar performance in Mar-17 (+84.8% yoy). Intermediate imports also slowed to +10.3% yoy (May: +33.8% yoy). Consumption imports declined by -5.2% yoy (May: +8.5% yoy).

• Trade surplus amounted to RM43.0bn in Jan-Jun 2017, higher than RM41.8bn reached in the same period last year. We reiterate our forecast that current account surplus will average RM25bn in 2017, matching the level recorded in 2016.

• The continued expansion in quarterly trade data suggests that economic growth maintained its momentum in 2Q17. Nevertheless, we continue to expect export growth to moderate in 2H17 as the effect from low base effect wears out. Hence, we maintain our GDP growth forecast at 4.9% in 2017 and our projection for BNM to leave the OPR unchanged at 3.00%.

Source: Hong Leong Investment Bank Research - 7 Aug 2017