Exports fell at a faster pace in September (-6.8% YoY; Aug: -0.8% YoY), significantly below the consensus estimate of flat growth. This was the largest contraction since October 2016. Meanwhile, imports rebounded by +2.4% YoY (Aug: -12.5% YoY). The contraction in exports was mainly due to deterioration in E&E, crude oil and petroleum product exports. Imports saw a broad-based rebound due to low base effect. Trade surplus narrowed to RM8.3bn (Aug: RM10.9bn).

DATA HIGHLIGHTS

Exports contracted further in September (-6.8% YoY; Aug: -0.8% YoY). Imports rebounded (+2.4% YoY; Aug: -12.5% YoY) due to low base effect. Consequently, the trade surplus narrowed to RM8.3bn (Aug: RM10.9bn).

Exports to ASEAN (-8.6% YoY; Aug: -1.0% YoY) and China (-3.0% YoY; Aug: -2.9% YoY) declined while exports to the EU (-10.8% YoY; Aug: +5.3% YoY) and Japan (- 1.7% YoY; Aug: +3.7% YoY) reversed into a contraction. The fall in exports to ASEAN was due to lower E&E exports, while exports to EU declined due to lower palm oil exports. Meanwhile, exports to US remained positive due to some positive trade diversion effects from diodes, transistors & solar panels, electronic integrated circuits as well as boards & panels (+6.6% YoY; Aug: +6.8% YoY).

Commodity-related exports fell across the board, recording a sharper contraction of - 13.9% YoY for the month (Aug: -3.6% YoY). The decline was mainly driven by lower crude petroleum (-45.8% YoY; Aug: -40.2% YoY) and refined petroleum products exports (-13.4% YoY; Aug: +7.0% YoY). The decline in crude petroleum exports was attributed to lower volume (-38.1% YoY; Aug: -34.2% YoY) and average unit value (AUV) (-12.4% YoY; Aug: -9.1% YoY). Similarly, petroleum products exports fell due to lower export volume (-15.4% YoY; Aug: +32.9% YoY) and AUV (-2.0% YoY; Aug: - 19.0% YoY).

Exports of manufactured products declined by -4.8% YoY (Aug: 0%) due mainly to deterioration in E&E (-12.2% YoY; Aug: -7.4% YoY) and chemical export (-11.5% YoY; Aug: -4.5% YoY).

Imports rebounded by +2.4% YoY (Aug: -12.5% YoY) on account of low base effect. Capital imports rose +7.3% YoY (Aug: -30.7% YoY) due mainly to higher imports of parts of electrical machinery and equipment. Intermediate imports increased (+11.1% YoY; Aug: -13.2% YoY) following higher imports of primary fuel and lubricants, while consumption imports rose +15.1% YoY (Aug: -12.8% YoY) due to higher imports of semi-durables, mainly plastics and articles. Trade surplus in 3Q19 amounted to RM33.5bn, larger than surplus recorded in 3Q18 (RM25.1bn), implying trade could have contributed to overall GDP in 3Q19 (to be released on 15th Nov).

HLIB’s VIEW

The loss of momentum in exports performance was in line with the regional trend. This was also consistent with the drop in WTO Trade Outlook Indicator’s latest reading to 95.7 for 3Q19 (2Q19: 96.3) as export orders, international air freight and container port throughput remained below trend. Readings below 100 suggests world trade volume is likely to remain below its average trend. While there have been some positive developments in US-China trade talks, we opine that downside risks to trade will continue to persist. Consequently, we maintain our forecast for BNM to reduce the OPR by 25bps by 1Q 2020.

Source: Hong Leong Investment Bank Research - 11 Nov 2019