Exports reversed its prior month gains by -1.5% YoY in January (Dec: +2.7% YoY), but slightly beat the -1.6% YoY consensus estimate. Similarly, imports contracted by -2.4% YoY (Dec: +1.0% YoY). Exports mainly fell due to lower exports of E&E and LNG, while imports were dragged by lower capital and consumption imports. Consequently, the trade surplus narrowed to RM12.0bn (Dec: RM12.5bn).

DATA HIGHLIGHTS

Exports contracted by -1.5% YoY in January (Dec: +2.7% YoY), slightly beating market expectations of a -1.6% YoY decline. Similarly, imports also declined (-2.4% YoY; Dec: +1.0% YoY). Consequently, the trade surplus eased slightly to RM12.0bn (Dec: RM12.5bn). On a monthly basis, exports and imports declined by -2.7% (Dec: +6.8%) and -2.4% (Dec: -0.5%) respectively, owing to the shorter working month during Chinese New Year festive period.

Exports to most major markets posted a decline, including to China (-5.7% YoY; Dec: +17.8% YoY), ASEAN (-4.1% YoY; Dec: +3.9% YoY) and Japan (-1.6% YoY; Dec: - 13.9% YoY). Exports to EU also fell, but at a faster pace (-7.4% YoY; Dec: -3.8% YoY) due mainly to lower E&E and metal product exports. Meanwhile, exports to US moderated to +9.5% YoY (Dec: +15.1% YoY). This marks the 10th consecutive month of expansion in exports to US, indicating trade diversion from the ongoing US-China trade war.

Commodity-related exports moderated to +5.0% YoY (Dec: +7.0% YoY) as weaker exports of LNG (-22.8% YoY; Dec: -21.3% YoY), crude petroleum (-10.9% YoY; Dec: -24.3% YoY) and palm oil products (+0.5% YoY; Dec: +34.2% YoY) offset the surge in petroleum product exports (+45.8% YoY; Dec: +36.2% YoY). LNG exports declined on the back of lower export volume (-12.2% YoY; Dec: +2.9% YoY) and average unit value (AUV) (-12.0% YoY; Dec: -16.1% YoY), while the fall in crude petroleum was attributed to lower export volume (-22.0% YoY; Dec: -23.2% YoY).

The weakness in manufactured exports was broad-based, registering a decline of - 3.3% YoY (Dec: +1.5% YoY). Exports of chemicals (-17.7% YoY; Dec: -7.3% YoY) and E&E (-5.5% YoY; Dec: -5.4% YoY) declined at a faster pace, while growth in machinery (+5.7% YoY; Dec: +6.9% YoY) slowed.

Imports also weakened to -2.4% YoY (Dec: +1.0% YoY). Growth was dragged by continued weakness in capital imports (-15.0% YoY; Dec: -11.0% YoY), reversal in consumption imports (-1.0% YoY; Dec: +3.2% YoY) as well as moderation in intermediate imports (+3.7% YoY; Dec: +6.2% YoY). The fall in capital imports stemmed mainly from lower imports of machinery and mechanical appliances, while consumption imports fell due to lower imports of semi-durables mainly for apparels and clothing accessories.

HLIB’s VIEW

Following the fallout of Covid-2019, China’s factories were closed on a prolonged Lunar New Year break. Underscoring the suddenness of economic downshift, Caixin/Markit Manufacturing PMI declined to fresh lows of 40.3 in February, from 51.1 in January. This is expected to have a negative knock-on effect to the rest of the export-dependent countries, including Malaysia. Prolonged weakness in capital imports also suggests slower recovery in investments. For now, we maintain our 2020 GDP forecast to remain modest at +4.1% YoY (2019: +4.3% YoY), with growth in 1Q2020 to record sub-3% YoY.

Source: Hong Leong Investment Bank Research - 5 Mar 2020