Exports grew by +4.8% YoY (Nov: +1.6% YoY) in December, exceeding market expectations for +1.3% YoY growth. Imports, however, slowed to +1.0% YoY (Nov: +4.7% YoY). The faster pace of exports was driven by recovery in manufactured exports which offset the decline in commodity exports. Imports were slower due to a faster decline in capital imports. Following this, the trade surplus widened to RM10.4bn (Nov: RM7.8bn). In Jan-Dec 2018, exports rose +6.7% YoY (Jan-Dec 17: +18.9% YoY), while imports rose +4.9% YoY (Jan-Dec 17: +19.9% YoY).

DATA HIGHLIGHTS

Exports grew by +4.8% YoY in December (Nov: +1.6% YoY), beating market expectations of +1.3% YoY. The stronger growth was mainly driven by low base effect and weaker ringgit during the month (USD/RM4.1703; Dec 17: USD/RM4.0778). In USD terms, exports rose by a more moderate pace of +2.6% YoY (Nov: +1.3% YoY). Imports slowed to +1.0% YoY (Nov: +4.7% YoY). Consequently, the trade surplus widened to RM10.4bn (Nov: RM7.8bn). In Jan-Dec 2018, exports rose +6.7% YoY (Jan-Dec 17: +18.9% YoY), while imports rose +4.9% YoY (Jan-Dec 17: +19.9% YoY). Trade balance widened in 2018 to RM120.3bn (2017: RM98.5bn).

Exports to US rebounded sharply by +13.5% YoY (Nov: -3.6% YoY) mainly driven by higher demand for E&E and machinery exports. Exports to ASEAN moderated to +2.6% YoY (Nov: +6.4% YoY) while exports to China (-0.5% YoY; Nov: +3.9% YoY), EU (-4.9% YoY; Nov: -7.7% YoY) and Japan (-6.4% YoY; Nov: -8.9% YoY) declined.

Commodity-related exports contracted by -9.2% YoY (Nov: +13.7% YoY). Export volume declined for palm oil products (-1.5% YoY; Nov: +1.4% YoY), LNG (-15.9% YoY; Nov: +4.2% YoY) and refined petroleum products (-13.2% YoY; Nov: +15.9% YoY) while export volume of crude petroleum rebounded (+7.7% YoY; Nov: -11.9% YoY). Average unit value (AUV) declined for palm oil products (-23.3% YoY; Nov: - 19.7% YoY) and crude petroleum (-19.4% YoY; Nov: +3.6% YoY). AUV for LNG and refined petroleum products moderated to +15.7% YoY (Nov: +21.3% YoY) and +9.1% YoY (Nov: +28.6% YoY) respectively.

Exports of manufactured goods rebounded by +9.2% YoY (Nov: -1.7% YoY) on the back of a rebound in E&E (+14.2% YoY; Nov: -1.7% YoY), machinery (+7.6% YoY; Nov: -0.4% YoY) and rubber exports (+4.8% YoY; Nov: -2.7% YoY). Chemical (+36.6% YoY; Nov: +15.1% YoY) and optical exports (+14.6% YoY; Nov: +10.4% YoY) also rose.

Imports slowed to +1.0% YoY (Nov: +4.7% YoY) due to a sharp decline in capital imports (-21.7% YoY; Nov: -2.1% YoY) which offset the rise in consumption goods (+5.7% YoY; Nov: +1.2% YoY) and rebound in intermediate goods (+3.1% YoY; Nov: -0.4% YoY). Capital imports declined on account of lower imports of industrial transport equipment. Meanwhile, the rebound in intermediate imports was attributed to higher imports of primary industrial supplies.

HLIB’s VIEW

While export growth surprised on the upside in December 2018, this was mainly driven by weaker ringgit during the month as well as a low base in the same period last year. We remain cautious on the success of US China trade talks and the impact on global growth and consequentially, Malaysia’s exports. The continued slowdown in global economic activity and volatility in the financial market also remains a key downside risk to trade activity.

Source: Hong Leong Investment Bank Research - 31 Jan 2019