Exports continued to post a double-digit decline in May by -25.5% YoY (Apr: - 23.8% YoY), worse than the consensus estimate of -20.2% YoY. Imports also plunged by -30.4% YoY (Apr: -8.0% YoY). Most major export products saw a decline, with the exception of rubber products. Meanwhile, imports fell across the board. Consequently, trade balance returned to a surplus of RM10.4bn (Apr: -RM3.5bn).

DATA HIGHLIGHTS

Exports deteriorated further in May (-25.5% YoY; Apr: -23.8% YoY), worse than the consensus estimate of -20.2% YoY and the lowest since May 2009 (-29.5% YoY). Imports also saw a steeper drop of -30.4% YoY (Apr: -8.0% YoY). On a month-on month basis, exports and imports declined by -3.2% (Apr: -19.1%) and -23.6% (Apr: +0.9%) respectively. The larger decline in imports relative to exports returned the trade balance to a surplus of RM10.4bn (Apr: -RM3.5bn).

Exports to most major markets sank, excluding China. Exports to China grew +4.5% YoY (Apr: +4.2% YoY), driven by higher manufactured goods such as petroleum products and iron and steel products. Exports to Japan (-33.0% YoY; Apr: -28.4% YoY) and ASEAN (-30.6% YoY; Apr: -24.1% YoY) contracted at a steeper pace, while the decline in exports to EU (-25.4% YoY; Apr: -35.7% YoY) and US (-9.3% YoY; Apr: -31.1% YoY) eased. The softer decline in exports to US was aided by strong export growth for rubber and wood products.

Commodity-related exports dropped further (-30.6% YoY; Apr: -16.1% YoY), owing to the steeper contraction in crude petroleum (-69.0% YoY; Apr: -33.8% YoY), petroleum products (-42.7% YoY; Apr: -25.0% YoY), LNG (-30.7% YoY; Apr: -20.5% YoY) and palm oil (-15.6% YoY; Apr: -1.5% YoY). This offset the continued expansion in exports of rubber products (+20.5% YoY; Apr: +11.7% YoY), underpinned by the growing demand for rubber gloves during the pandemic.

The decline in manufactured exports slightly eased to -24.0% YoY (Apr: -26.0% YoY). Apart from chemical products (-24.2% YoY; Apr: -18.2% YoY), other manufactured exports recorded a slower contraction, including optical (-11.3% YoY; Apr: -34.8% YoY), E&E (-19.9% YoY; Apr: -21.7% YoY), machinery (-29.6% YoY; Apr: -53.3% YoY) and metal products (-35.4% YoY; Apr: -54.2% YoY).

Imports plunged by -30.4% YoY (Apr: -8.0% YoY), owing to the broad-based decline in capital (-27.8% YoY; Apr: +68.9% YoY), intermediate (-27.8% YoY; Apr: -30.6% YoY) and consumption goods (-21.9% YoY; Apr: -12.0% YoY). Capital goods mainly fell on lower imports of machinery, mechanical appliances and parts, while intermediate goods declined due to lower imports of plastics and articles. Consumption goods were lower on account of semi-durable goods, particularly footwear.

HLIB’s VIEW

While most domestic economic sectors were allowed to resume operations under the Conditional MCO in May, economic activity remained slow on the global front. Weaker trade data was in line with most regional countries who also posted larger contraction in May compared to April data. We anticipate the decline in exports to bottom out in 2Q20, and recover at a sluggish pace in 2H20. In line with this, IMF lowered global forecast to -4.9% YoY (April 20: -3.0% YoY) partly on account of a more gradual recovery expected in 2H20. Against weak global and domestic economy, we maintain our expectation for BNM to reduce the OPR by 25bps in 2H20.

Source: Hong Leong Investment Bank Research - 30 Jun 2020