Exports declined significantly by -23.8% YoY in Apr (Mar: -4.7% YoY), faring worse than the consensus estimate of -12.8% YoY. Imports also continued to decline by -8.0% YoY (Mar: -2.7% YoY). Exports of most major products declined, with the exception of rubber and iron & steel products. Imports fell on the back of lower intermediate and consumption imports. Trade balance recorded a deficit of –RM3.5bn (Mar: RM12.3bn).

DATA HIGHLIGHTS

Exports sharply deteriorated in Apr (-23.8% YoY; Mar: -4.7% YoY), faring worse than the consensus estimate of -12.8% YoY. This was the largest drop since Sep 2009. Imports also continued to decline by -8.0% YoY (Mar: -2.7% YoY). On a monthly basis, exports declined by -19.0% (Mar: +7.6%) while imports continued to grow, but at a slower pace of +0.9% YoY (Mar: +9.7%). Consequently, trade balance recorded a deficit of –RM3.5bn (Mar: RM12.3bn), breaking the 269-month streak of surplus.

Exports to most major markets sank due to movement restrictions in Malaysia and most major economies. Exports to EU (-35.7% YoY; Mar: -14.2% YoY), US (-31.1% YoY; Mar: -3.6% YoY), Japan (-28.4% YoY; Mar: -0.5% YoY) and ASEAN (-24.1% YoY; Mar: +3.0% YoY) saw large contractions. Meanwhile, exports to China rebounded to positive territory (+4.2% YoY; Mar: -6.1% YoY) as movement restrictions were lifted during that period, driven by higher exports of iron & steel, E&E products and crude petroleum.

Commodity-related exports declined by -15.4% YoY (Mar: +4.7% YoY), largely owing to steeper contraction in crude petroleum (-33.8% YoY; Mar: -4.2% YoY), petroleum products (-23.2% YoY; Mar: +22.7% YoY) and LNG (-20.5% YoY; Mar: -13.4% YoY). Crude petroleum contracted due to lower export volume (-10.0% YoY; Mar: +2.0% YoY) and average unit value (AUV) (-26.5% YoY; Mar: -6.1% YoY). LNG declined due to decrease in both export volume (-18.3% YoY; Mar: -1.5% YoY) and AUV (-2.7% YoY; Mar: -12.1% YoY).

Manufactured exports deteriorated further (-26.0% YoY; Mar: -7.3% YoY) amid global lockdown measures. Steeper decline was seen across all major manufactured exports, including metal (-54.2% YoY; Mar: -22.2% YoY), machinery (-53.3% YoY; Mar: -17.6% YoY), optical (-34.8% YoY; Mar: -9.1% YoY), E&E (-21.7% YoY; Mar: - 13.9% YoY) and chemical (-18.2% YoY; Mar: -5.1% YoY).

Imports also declined (-8.0% YoY; Mar: -2.7% YoY) due to lower intermediate (-30.6% YoY; Mar: +2.2% YoY) and consumption imports (-12.0% YoY; Mar: +7.0% YoY), which offset the sharp rebound in capital imports (+68.9% YoY; Mar: -48.1% YoY). Capital imports were driven by higher shipments of transport equipment (floating structure) which saw an acute rise (+232.7% YoY; Mar: -44.2% YoY). This may be due to PETRONAS’ second floating LNG vessel, PFLNG Dua, from South Korea.

HLIB’s VIEW

The deterioration in exports comes as no surprise given that global lockdown measures to contain the spread of Covid-19 led to major disruptions in manufacturing and trade activity. While a gradual recovery in exports is expected as more industries resume operations at full capacity under Conditional MCO, global demand is anticipated to remain sluggish. The World Trade Organization (WTO) goods barometer, which fell to 87.6 (1Q20: 95.5) points to a sharp contraction in world trade in 2Q20, far below the baseline value of 100. We maintain our expectation for BNM to reduce OPR by 25bps in 2H2020.

Source: Hong Leong Investment Bank Research - 5 Jun 2020