Slower exports of E&E partly due to seasonal factor and high base effect

Malaysia’s export growth slowed sharply from 14.4% yoy in November to 4.7% in December, the first single digit growth since June, and also significantly lower than market expectations of 12.7%. The sharp slowdown was partly attributed to seasonal factor as well as high base effect, which led to lower exports of electrical & electronic (E&E) products, from 21.1% yoy in November to 6.2% in December, the lowest level after recording strong double-digit growth for eleven consecutive months.

This was reflected mainly in the sharp decline of exports of electrical apparatus and parts, which contracted by 14.7% yoy in December, followed by telecommunication equipment, part and accessories, and parts and accessories for office machines. Similarly, demand for thermionic valves and tubes, photocells also slowed from 32.2% yoy in November to 12.9% in December, partly due to seasonal factor, reflected mainly in the weak exports to the US. However, according to the Semiconductor Industry Association (SIA), growth in global semiconductor sales rose further from 21.5% yoy in November to 22.5% in December. The global sales have also breached the US$400bn mark as at end-2017, rising by 21.6% to US$412.2bn, the industry’s highest-ever annual sales. The sustained growth was led by higher sales in memory products, with all major countries continuing to post double-digit growth during the month, with US posted its highest growth of 41.4% yoy, followed by Europe (20.4%) and China (18.1%).

As a result, in Malaysia, despite the currency appreciation from a stronger Ringgit as well as seasonal factor, with stronger global sales reflected across the majority of semiconductor product categories, we believe Malaysia’s exports of E&E are likely to be sustained in the months ahead. SIA also noted that “semiconductors have become more heavily embedded in an ever-increasing number of products – from cars to coffee makers – and nascent technologies like artificial intelligence, virtual reality, and the Internet of Things”, therefore expecting global demand for semiconductors to sustain.

However, exports of chemicals and chemical products slowed by 6.8% yoy in December (20.2% in November), while exports of rubber products by 3.5% yoy in December (37% in November). Other components, including exports of machinery and appliances, manufactures of metal as well as optical & scientific equipment slowed by 4.8%, 17% and 5.5% respectively. Exports of agriculture goods also slowed in December, where exports of palm oil and palm oil based agriculture products, declined further from -5.2% yoy in November to -8.6%, due to the decline in the average unit value despite higher export volume posted during the month.

Meanwhile, on mining goods, exports of crude petroleum and refined petroleum products increased by 6.9% and 6.2% yoy respectively in December. Nonetheless, exports of liquefied natural gas (LNG) slowed by 4.8% yoy in December (7.1% in November), due to lower average unit value albeit higher export volume in the same month.

Exports to US and ASEAN Region Contracted in December

In terms of exports by destination, exports to US declined sharply from 13.4% yoy in November to -3.1% in December. Likewise, exports to ASEAN region also dropped from 18.3% yoy in November to -0.5% in December. However, consistent with China’s official manufacturing PMI, which rose by 51.5 in January 2018, reflecting favourable business conditions across the Chinese manufacturing sector, Malaysia’s exports to China rose from 3.3% yoy in November to 12.8% in December, with higher demand for manufactured goods and mining goods. Exports to Japan also recorded positive growth at 5.8% yoy in December, albeit slightly lower than the prior month of 6.7% growth.

Imports Dragged by Declines in Consumption and Intermediate Goods

Growth in imports slowed from 15.2% yoy in November to 7.9% in December, attributed to the declines in imports of both intermediate and consumption goods (which together accounted for nearly 61.6% of total imports). In particular, imports of intermediate goods unexpectedly declined by 0.7% yoy for the month (13.8% in November), but we expect some improvement in the months ahead, with exporters demanding slightly more imports of intermediate inputs to meet global demand. However, imports of capital goods rose further by 35.2% yoy in December (12.1% in November). The monthly trade surplus narrowed from RM10bn in November to RM7.3bn in December.

For the whole of 2017, growth in gross exports rose sharply by 18.9%, while gross imports by 19.9%, where on a cumulative basis, the country’s trade surplus increased by 10.3% to RM97.2bn, higher compared with a surplus of RM88.1bn in 2016. However, due to the high base effect last year, going into 2018, we are projecting Malaysia’s export growth to slow to about 5.0- 7.0%, with import growth of 5.5-7.5%, where we believe that trade surplus will remain healthy around the range of RM95-98bn (RM97.2bn in 2017).

Source: Affin Hwang Research - 8 Feb 2018