Exports growth eased to +3.1% YoY in July (Jun: +8.0% YoY), beating consensus expectations of a -1.4% YoY decline. This was supported by manufacturing, palm oil and rubber exports. Meanwhile, the decline in imports steepened to -8.7% YoY (Jun: -5.6% YoY), owing to lower capital and intermediate imports. Consequently, trade surplus reached a new high of RM25.1bn (Jun: RM20.9bn).

DATA HIGHLIGHTS

Exports eased in July (+3.1% YoY; Jun: +8.0% YoY), faring better than the consensus estimate of -1.4% YoY. Imports declined at a steeper pace (-8.7% YoY; Jun: -5.6% YoY). On a monthly basis, the growth in exports (+11.7%; Jun: +32.2%) continued to surpass that of imports (+8.7%; Jun: +18.6%), which led trade surplus to a new high of RM25.1bn (Jun: RM20.9bn).

Exports to US continued to pick up (+28.6% YoY; Jun: +27.6% YoY), driven by exports of E&E products, rubber products, wood products, petroleum products as well as machinery, equipment and parts. Exports to EU also edged higher (+3.4% YoY; Jun: +3.3% YoY), while exports to China (+13.9% YoY; Jun: +46.8% YoY) and ASEAN (+0.1% YoY; Jun: +1.2% YoY) eased. Meanwhile, exports to Japan fell - 2.8% YoY (Jun: +9.8% YoY).

Commodity-related exports rebounded by +8.1% YoY (Jun: -7.4% YoY), aided by the surge in palm oil (+52.0% YoY; Jun: +45.4% YoY) and rubber exports (+93.9% YoY; Jun: +101.0% YoY), which could be attributed to the booming demand for rubber gloves during the pandemic. This offset the continued decline in LNG (-47.6% YoY; Jun: -24.5% YoY), petroleum products (-7.1% YoY; Jun: -26.2% YoY) and crude petroleum exports (-4.9% YoY; Jun: -70.9% YoY).

Manufactured exports decelerated to +1.9% YoY (Jun: +12.4% YoY) due to moderation in optical & scientific equipment (+9.9% YoY; Jun: +35.6% YoY) and E&E exports (+9.2% YoY; Jun: +15.9% YoY) amid lower exports of chemicals & chemical products (-23.2% YoY; Jun: -5.9% YoY), manufactures of metal (-5.9% YoY; Jun: +9.4% YoY) and machinery (-4.4% YoY; Jun: +29.4% YoY).

The decline in imports steepened (-8.7% YoY; Jun: -5.6% YoY), owing to the decline in capital (-19.7% YoY; Jun: +2.6% YoY) and intermediate imports (-17.3% YoY; Jun: -10.7% YoY). The fall in capital goods were mainly due to lower imports of machinery and mechanical appliances parts, while intermediate goods declined on processed industrial supplies, particularly iron and steel. Meanwhile, consumption imports recorded minimal growth (+0.1% YoY; Jun: +9.1% YoY), supported by higher imports of durables, particularly machinery and mechanical appliances parts.

HLIB’s VIEW

While exports continued to perform better than expected, the growth momentum has slowed, suggesting a sluggish recovery in external demand. The latest reading of the WTO’s Goods Trade Barometer of 84.5 in June remains well below the baseline value of 100. All of the barometer’s component indices were below trend, with the exception of export orders index, which has turned upward. While this may point to some uptick in global trade in 3Q20, the WTO noted that the strength of recovery remains highly uncertain with regards to developments surrounding the pandemic. Hence, we maintain our expectation for GDP to contract by -5% YoY in 2020.

Source: Hong Leong Investment Bank Research - 1 Sept 2020