Exports grew at a faster pace of +2.5% YoY in May (Apr: +1.1% YoY), exceeding market expectations of +2.2% YoY. Meanwhile, imports eased to +1.4% YoY (Apr: +4.4% YoY). Exports were driven by manufacturing exports and palm oil exports, while imports eased due to decline in capital imports alongside moderation in intermediate and consumption imports. The trade surplus narrowed to RM9.1bn (Apr: RM10.8bn) due to decline in exports on a monthly basis.

DATA HIGHLIGHTS

Exports picked up by +2.5% YoY in May (Apr: +1.1% YoY), exceeding market expectations of +2.2% YoY. Meanwhile, imports moderated to +1.4% YoY (Apr: +4.4% YoY). On a monthly basis, exports declined (-1.2%; Apr: +1.3%) while imports decelerated (+1.0%; Apr: +6.7%), which led to smaller trade surplus of RM9.1bn (Apr: RM10.8bn).

Exports to US surged (+11.7% YoY; Apr: +3.1% YoY) due to higher E&E, machinery and wood products. Some of the products that were affected by tariffs registered growth, and are seen as potential gains for Malaysia. For instance, during Jan-May 2019 period, exports to US rose for semiconductors (+90.7% YoY; Jan-May 2018: - 24.1% YoY) and parts for electronic integrated circuits (+11.7% YoY; Jan-May 2018: - 7.1% YoY). Nevertheless, the strong growth in exports to the US was also aided by low base effect. Meanwhile, exports moderated to Japan (+7.5% YoY; Apr: +7.7% YoY) but declined to EU (-6.3% YoY; Apr: -8.6% YoY) and China (-2.2% YoY; Apr: - 6.6% YoY).

Commodity-related exports declined (-6.0% YoY; Apr: -1.4% YoY) following the decline in LNG and crude petroleum due to lower export volume. Nevertheless, palm oil exports rose due to higher export volume, especially to India. Palm oil exports to India surged +321.4% YoY (Apr: +36.2% YoY) even as India raised its base import price of CPO by USD5 per tonne during the month.

Exports of manufactured products accelerated by +5.2% YoY (Apr: +1.8% YoY), driven by surge in machinery exports (+14.9% YoY; Apr: +0.8% YoY) and chemicals (+7.7% YoY; Apr: +3.9% YoY) which offset moderations in E&E (+0.5% YoY; Apr: +3.9% YoY), optical (+3.8% YoY; Apr: +19.5% YoY) and decline in metal exports (- 6.8% YoY; Apr: -23.0% YoY).

Imports slowed to +1.4% YoY (Apr: +4.4% YoY) due to decline in capital imports (- 5.9% YoY; Apr: +5.7% YoY) and moderation in intermediate (+6.4% YoY; Apr: +20.3% YoY) and consumption imports (+10.9% YoY; Apr: +18.9% YoY). Capital imports fell mainly on the back of lower imports of industrial transport equipment, particularly ships and boats.

Malaysia’s export performance reported positive reading due to weaker ringgit in May (USD/MYR 4.1697; May’18: USD/MYR3.9635). In USD terms, exports continued to contract, albeit at a slower pace (-2.6% YoY; Apr: -4.5% YoY).

HLIB’s VIEW

For Apr-May 2019, trade surplus was lower at RM19.9bn (Apr-May 18: RM21.1bn) which suggest trade may not have contributed to overall GDP in 2Q19. In the recent G20 meeting, although US and China called for a truce in their trade war, the slowdown in global economic activity and prolonged uncertainty will likely weigh down on external demand further.

Source: Hong Leong Investment Bank Research - 5 Jul 2019