Exports declined by -4.7% YoY in Mar (Feb: +11.8% YoY), fared better than the consensus estimate of -9.4% YoY. Imports also recorded a fall of -2.7% YoY (Feb: +11.3% YoY). The decline in exports was mainly due to lower manufactured exports of E&E, metal and machinery while imports fell on the heels of lower capital imports. The trade surplus narrowed to RM12.3bn (Feb: RM12.6bn). In 1Q20, exports and imports rebounded by +1.1% YoY (4Q19: -3.4% YoY) and +1.3% YoY (4Q19: -3.9% YoY) respectively, bringing the trade surplus to RM37.0bn (4Q19: RM36.4bn).

DATA HIGHLIGHTS

Exports declined by -4.7% YoY in Mar (Feb: +11.8% YoY), better than market expectations of -9.4% YoY decline. Imports also fell by -2.7% YoY (Feb: +11.3% YoY). Meanwhile, on a monthly basis, exports and imports increased by +7.6% (Feb: - 11.5%) and +9.6% (Feb: -14.2%) respectively. Consequently, trade surplus narrowed slightly to RM12.3bn (Feb: RM12.6bn). Trade surplus for Jan – Mar 2020 remained steady at RM37.0bn (Jan – Mar 2019: RM37.0bn).

Exports to most major markets weakened. Exports to Japan (-0.5% YoY: Feb: 3.7% YoY) and China declined (-6.1% YoY; Feb: +11.0% YoY), while exports to EU fell at a steeper pace (-14.2% YoY; Feb: -4.9% YoY). Exports to US fell for the first time since a year ago (-3.6% YoY; Feb: +25.5% YoY) due to softer demand for manufactured goods including optical and scientific equipment, E&E products and transport equipment. Meanwhile, exports to ASEAN decelerated sharply to +3.0% YoY (Feb: +14.6% YoY).

Commodity-related exports grew at a slower pace of +4.7% YoY (Feb: +11.0% YoY), owing to weaker LNG (-13.4% YoY; Feb: +7.1% YoY), crude petroleum (-4.2% YoY; Feb: -11.7% YoY) and palm oil product exports (-0.3% YoY; Feb: +17.1% YoY), which was partially offset by stronger petroleum product exports (+22.7% YoY; Feb: +17.0% YoY). LNG and crude petroleum exports fell on lower average unit value, while palm oil product exports fell on lower export volume.

The decline in manufactured exports was broad-based (-7.3% YoY; Feb: +12.0% YoY) due to weak global economic activity. This includes metal (-22.2% YoY; Feb: +13.3% YoY), machinery (-17.6% YoY; Feb: +23.0% YoY), E&E products (-13.9% YoY; Feb: -2.7% YoY), optical (-9.1% YoY; Feb: +50.9% YoY) and chemical exports (- 5.1% YoY; Feb: +9.6% YoY).

Imports were also lower for the month (-2.7% YoY; Feb: +11.3% YoY) due mainly to a steeper decline in capital imports (-47.5% YoY; Feb: -16.9% YoY), particularly in transport equipment imports of aircraft and parts. Meanwhile, intermediate and consumption imports slowed to +2.0% YoY (Feb: +20.4% YoY) and +7.0% YoY (+10.1% YoY) respectively.

HLIB’s VIEW

Mar’s weaker export print was largely in line with the regional trend, excluding Singapore. This trend is expected to extend into 2Q20, when the brunt of Covid-19 impact is expected to be felt, amid depressed external demand following worldwide lockdowns. While some countries including Malaysia have started to gradually ease lockdown measures, recovery is anticipated to be very sluggish. Weak global economic activity and potential re-escalation of US-China trade tensions also pose downside risks to the fragile economic environment. We maintain our 2020 GDP forecast at -6.0% YoY (2019: +4.3% YoY).

Source: Hong Leong Investment Bank Research - 5 May 2020