Exports rebounded by +1.7% YoY in July (Jun: -3.1% YoY) significantly above the consensus estimate of -2.5% YoY. Meanwhile, imports fell by -5.9% YoY (Jun: -9.6% YoY). The rebound in exports was mainly due to pick up in manufacturing exports which offset the decline in commodity exports. Imports fell across the board. Consequently, trade surplus widened to RM14.3bn (Jun: RM10.5bn).

DATA HIGHLIGHTS

Exports rebounded by +1.7% YoY in July (Jun: -3.1% YoY) which came in significantly above market expectations of -2.5% YoY. Imports declined by -5.9% YoY (Jun: -9.2% YoY). Consequently, the trade surplus widened to RM14.3bn (Jun: RM10.5bn).

Exports to China (+3.8% YoY; Jun: -12.0% YoY) and ASEAN (+1.8% YoY; Jun: -0.2% YoY) rebounded while exports to the US grew at a slower pace (+7.9% YoY; Jun: +8.8% YoY). Meanwhile, exports to Japan decreased by -6.3% YoY (Jun: -13.5% YoY) following decline in LNG, petroleum products and palm oil based products. In addition, exports to the EU also registered a contraction (-2.8% YoY; Jun: +1.0% YoY) on account of lower exports of palm oil and palm oil based products.

Commodity-related exports contracted by -7.8% YoY after recording a brief turnaround in the previous month (+2.6% YoY). The renewed decline was driven by contraction in palm oil (-11.8% YoY; Jun: +3.0% YoY) and crude petroleum (-45.7% YoY; Jun: +31.7% YoY). The fall in in crude petroleum was due to decline in average unit value (-1.2% YoY; Jun: +0.8% YoY) and export volume (-45.0% YoY; Jun: +30.6% YoY). The fall in palm oil product was driven by shortfall in average unit value.

Exports of manufactured products picked up by +4.3% YoY (Jun: -4.7% YoY) on account of a rebound in E&E (+4.5% YoY; Jun: -6.0% YoY), machinery (+6.0% YoY; Jun: -10.9% YoY), chemical (+1.9% YoY; Jun: -4.6% YoY) and slower decline in optical exports (-2.3% YoY; Jun: -4.9% YoY).

Imports fell by -5.9% YoY (Jun: -9.2% YoY) due to contraction across sectors. Capital imports declined (-13.9% YoY; Jun: -23.6% YoY) due mainly to lower imports of industrial transport equipment particularly aircrafts and parts. Intermediate imports fell by -3.4% YoY (Jun: -2.5% YoY) following lower imports of parts and accessories of capital goods, electrical machinery, equipment and parts. Consumption imports contracted by -5.0% YoY (Jun: -5.4% YoY) following lower imports of semi-durables, mainly apparel and clothing.

HLIB’s VIEW

Trade surplus amounted to RM81.6bn in Jan-July 2019, higher than trade surplus recorded during the same period last year (RM70.5bn) which suggest external trade continued to contribute to economic growth. Nevertheless, worsening global trade outlook amid US President Trump’s escalation to impose new tariffs on China’s goods is expected to weaken trade activity further. In line with this, global manufacturing PMI remained in contractionary territory in August (49.5; Jul: 49.3) as new orders and new export orders contracted at a faster pace. In addition, the continued decline in capital imports also point to continued weakness in domestic investment activity. Hence, as trade relations between US and China remains fraught with the possibility of worsening relations, we maintain our forecast for BNM to reduce the OPR by 25bps as early November 2019 MPC meeting.

Source: Hong Leong Investment Bank Research - 5 Sept 2019