Sharp Increase in Exports Was Due Partly to Seasonal Factors

Malaysia’s exports rose sharply by 30.9% yoy in July (10% in June), significantly higher than market expectation of 23%. This was attributed to higher exports of manufactured goods, which turned around sharply from -1% yoy in June to 38.4% yoy in July, the strongest yearly growth since October 2015. However, we believe the sharp increase in exports was also partly due to seasonal factors, with the reopening of factories in early July after the Eid al-fitr festival in late June as well as the low base effect in the corresponding period of last year.

Exports of electrical & electronic (E&E) products rose sharply from 15.1% yoy in June to 28.3% in July, supported by higher demand for semiconductors. Malaysia’s semiconductor sales, which account for about 49.9% of the overall E&E segment, rose by 26.4% yoy during the month (19.1% in June). This was also in tandem with strong global demand for semiconductors in July, which rose by 24% yoy (23.7% in June). Exports of petroleum products rose by 85.4% yoy in July (-15.7% yoy in June), while on volume basis, exports of petroleum products grew by 40% yoy (-31% yoy in June),

As for commodities, exports of palm oil and palm-based agriculture products remain stable, growing by 13.1% yoy in July (16% in June). Most of the growth was due to higher export value index for palm oil, while the volume growth moderated to 4.4% yoy in July, from 8.2% yoy in June. However, exports of crude petroleum remain weak, contracting by 2.1% yoy in July (- 1% yoy in June), while volume contracted further by 9.5% yoy (-9.2% yoy in June). On the other hand, exports of liquefied natural gas (LNG) expanded by 63.6% yoy (97.3% yoy in June). The strong performance of LNG was led by both the value index and volume growth, due to strong demand from Japan where the volume increased by 16.9% yoy in July, though moderating from 27% yoy in June.

Steady Exports to US and China on Healthy Demand for E&E Products

By destination, exports to China picked up slightly in July, improving from 27.3% yoy in June to 28.8%, due to higher demand for E&E products, rubber products, LNG, chemicals and chemical products as well as manufactures of metal. Exports to US also improved to 14.4% yoy (1.8% in June), with improvement reflected across all sub-sectors except for transport equipment and jewellery.

Similarly, exports to ASEAN countries experienced a sharp rebound, from 2% yoy in June to 34% in July, with improvement seen across all neighbouring countries, due to higher exports of petroleum products, E&E products, machinery, equipment and parts, optical and scientific equipment, chemicals and chemical products as well as iron and steel products

Imports rose by 21.8% yoy in July, due to imports of intermediate goods

Being part of the global value chain, Malaysia’s strong export performance was also reflected in strong imports of intermediate goods. Imports rose by 21.8% yoy in July, in which imports of intermediate goods, which consist of 56.5% of the overall imports, rose by 24.2% yoy during the month. Imports of consumption goods turned around reaching the highest growth level in 16 months at 21.8% yoy. On the other hand, imports of capital goods actually contracted for the first time in nine months, falling by 16.5% yoy, though it was mostly due to the high base effect from July last year.

In July, Malaysia’s trade balance narrowed slightly to RM8.2bn (RM9.9bn in June), bringing cumulative trade balance to RM51bn in Jan-July, as compared to RM43.8bn for the same period last year. The significantly higher exports growth this year as compared to imports is helping Malaysia’s trade balance and current account to record substantial surplus. However, we are maintaining our trade surplus forecast at around RM85bn in 2017, slightly lower than the RM87.3bn surplus in 2016. We expect Malaysia’s gross exports to turn around strongly from -4.8% in 2016 to 20.5% in 2017, and gross imports from -4.2% to 22.7% during the same period.

Based on GDP by expenditure, we expect exports of goods and services to expand by 7% in 2017 (1.1% in 2016), and imports of goods and services to expand by 9.1% in 2017 (1.1% in 2016). We are maintaining the country’s real GDP growth forecast at 5.2% for 2017 as a whole (4.2% in 2016).

On the external environment, with the global manufacturing PMI improving further from 52.7 in July to 53.1 in August, it may suggest that manufacturers will remain positive on new orders and international trade, supported by favourable global economic conditions.

Source: Affin Hwang Research - 7 Sept 2017