Declines in Exports of Crude Petroleum and Palm Oil Products

Malaysia’s exports slowed to 21.5% yoy in August from 30.9% in July, but slightly above market expectations of 20%. The slowdown was attributed to the declines in exports of crude petroleum and palm oil products. However, growth in exports of E&E products, which account for 37.8% of total exports, was sustained at 20.1% yoy in August (28.3% in July), supported by higher demand for semiconductors from advanced economies. Exports of semiconductor products rose steadily by 19.5% yoy in August, albeit slower than 26.4% in July. Exports of E&E will likely be sustained in the months ahead, given the improvement in global semiconductor sales and strong projections from the smart devices, automotive, storage and healthcare markets. This was in tandem with the robust global sales of semiconductors, rising by 24% yoy in July and August, reaching a record high of US$35bn for the month of August. Semiconductor Industry Association (SIA) noted that “sales increased across the board, with every major regional market and semiconductor product category posting gains”. Among the major commodity groups, exports of palm oil and palm-based agriculture products recorded their first monthly contraction in 13 months, declining by 8.8% yoy in August (13.1% in July). However, this was due to higher base effect in the corresponding period of last year. Refined petroleum products also slowed sharply from 76% yoy in July to 33.5% in August, declining by 25.8% on a mom basis. On the other hand, exports of LNG continues its positive momentum for the third consecutive months of strong yearly growth, surging as high as 110% yoy in August (63.5% in July 2017), underpinned by both higher average unit value (AUV) and volume, especially from Japan.

Exports to US Rose by 14.5% Yoy in August, Led by Demand for E&E

Exports to US rose sharply in August, surging by 9.5% mom, with an improvement in yearly growth from 14.4% yoy in July to 14.5% yoy in August, supported by higher shipments of E&E products, rubber products, machinery, equipment and parts as well as iron and steel products. However, exports to both Japan and EU countries slowed to 18% and to 21.6% in August respectively. In most EU countries, exports of E&E products provided some cushion to the contraction in exports of both agriculture and mining goods.

Exports to ASEAN slowed down from 33.9% yoy in July to 16.4% in August. Apart from higher exports of E&E products, exports of agriculture and mining goods slowed, especially reflected in Thailand, where exports to the country fell to single digit at 7.4% yoy (31.4% yoy in July) and contracted by 14.7% mom.

Higher Imports in August Led by Imports of Capital Goods

Malaysia imports rose to 22.6% yoy in August (21.8% in July), attributed to the strong increase in imports of capital goods, which reflected positive sentiments among businesses which could lead to a healthy private investment numbers. Similarly, imports of intermediate goods remained strong at 25.4% in August, providing also an indication that the exports number should be stable in the coming months. This was consistent with global manufacturing Purchasing Managers’ Index (PMI), which rose to 53.2 in September, with most sub-components, such as production, new orders and purchasing activity remained solid during the month. On the other hand, imports of consumption goods remained at a double-digit figure in August at 17.8% yoy.

Malaysia’s trade balance widened to RM9.9bn in August (RM8.2bn in July), bringing cumulative trade balance to RM60.8bn in Jan-Aug, as compared to RM52.5bn for the same period last year. The significantly higher exports growth this year as compared to imports also lead to substantial surplus in the current account position. We are maintaining our trade surplus forecast at around RM85bn in 2017, slightly lower than the RM87.3bn surplus in 2016. The international reserves of Bank Negara Malaysia (BNM) increased further by US$0.7bn to US$101.2bn as at 29 September 2017, compared with US$100.5bn as at 30th August 2017, which marks the ninth consecutive month of increase.

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). However, the strengthening exports performance to US, such as demand for E&E products, will likely provide some cushion to the slowdown in exports of some commodity products, such as palm oil, if demand from China slows.

Source: Affin Hwang Research - 9 Oct 2017