Exports of E&E Products Rose to Its Highest Level in Six Months

Malaysia’s exports returned to a double-digit growth of 17.9% yoy in January, after slowing down sharply to 4.7% in December. The stronger growth in exports was driven by exports of electrical & electronic (E&E) products, which rose sharply from 6.3% yoy in December to 27.1% in January, its highest level of growth in six months, as reflected in the strong demand from China, ASEAN and EU countries. On a 3-month-moving-average basis, the growth in exports was at 12.4% yoy in January, slightly slower than 12.6% in December, reflecting the continued favourable external environment and steady expansion in global manufacturing activities. The strength in Malaysia’s exports of manufactured goods was also in line with the performance of global PMI and global semiconductor sales. Global PMI rose by 54.2 in February, albeit slower than 54.4 in January, reflecting that manufacturers around the globe continued to receive new export orders as international trade flows also improved. We expect growth in global semiconductor sales, which rose strongly by 21.6% yoy in December (21.5% in November), to be sustained in 1Q18 from higher global sales of memory/DRAM products. Malaysia’s exports of semiconductors rose to its strongest yoy growth in more than 8 years, increasing from 12.9% yoy in December to 58.1% in January, underpinned by robust demand for electronic integrated circuits.

However, other components such as telecommunications equipment, parts & accessories, contracted further from -9.8% yoy in December to -10.3% in January, while exports of electrical apparatus and parts declined by 14.7% yoy during the same month. Exports of chemicals and chemical products rose sharply from 6.8% yoy to 23.8%, while exports of liquefied natural gas (LNG) rose from 4.8% yoy to 14.0% during the same period. Despite the higher price of crude oil, exports of crude oil and petroleum products were relatively flat at 0.1% yoy and 0.3% yoy respectively in January. Exports of agriculture goods rose by 6.2%, due to higher exports of palm oil and palm oil-based agriculture products, which turned around sharply from -10.9% yoy in December to 10.1% in January..

Sharp Increase in Exports Was Reflected Across All Markets

In particular, Malaysia’s exports to ASEAN returned to a double-digit growth after contracting in December, from -0.5% yoy to 15.6% yoy, attributed mainly to exports of E&E products, petroleum products, chemicals and chemical products as well as machinery, equipment and parts. By ASEAN country, Malaysia’s exports to Vietnam rose sharply by 46.4% yoy in January (-22.3% in December), followed by Thailand at 31.4% yoy (2.55% in December), Indonesia at 30.7% yoy (-1.6% in December) and Singapore at 32.3% yoy (9.2% yoy in December).

More importantly, exports to the US recovered from -3.1% yoy in December to 8.7% in January, due mainly to higher exports of manufactured goods, which accounted for 95.6% of Malaysia’s total exports to the US. This was reflected in demand for transport equipment, chemicals and chemical products, optical and scientific equipment as well as rubber products. At the same time, exports to China rose by 17.9% yoy in January (12.8% in December), while exports to the EU remained in a double-digit growth of 13.6% yoy (11.4% in December). Among the major markets, only exports to Japan experienced a slight moderation from 5.8% yoy in December to 3.3% in January, but demand for LNG, iron and steel products, crude petroleum as well as palm oil and palm oilbased agriculture products remained strong during the month.

Import Growth Was Driven by Re-exports and Consumption Goods

Imports grew from 7.9% yoy in December to 11.6% in January, underpinned by higher imports of re-export goods. Import growth of capital goods declined sharply from 34% yoy in December to -3.1% in January, due mainly to lower imports of industrial transport equipment, particularly ships, boats and floating structures. Imports of intermediate goods recorded its second consecutive contraction at -1.7% yoy (-0.4% yoy in December), following lower imports of parts and accessories of capital goods (except transport equipment) particularly electrical, machinery, equipment and parts. However, we expect some improvement in imports of intermediate inputs in the months ahead, as the latest manufacturing PMI signals that the goods-producing sector is continuing to experience positive momentum with new exports order, supported partly by healthy overseas demand.

The country’s trade surplus widened by 33.9% mom to RM9.7bn in January, as compared to RM7.3bn in December. Growth in gross exports, which rose sharply to 18.9% in 2017, is likely to slow to about 7.0-9.0%, on our estimates, partly due to the high base effect last year. However, we believe that the trade surplus will remain healthy in the range of RM96-98bn in 2018 (RM97.2bn in 2017). Moving forward, despite some downside risks from tariffs announced by the US and its negative implication on international trade, both the World Trade Organization (WTO) and International Monetary Fund (IMF) remain cautiously optimistic that growth in global trade and global growth will be sustained in 2018. Steel and aluminium exports to the US only account for 0.15% of Malaysia’s total exports. However, the Malaysian economy will not be spared from a potential global trade war with trade retaliation by other countries toward US, as it is also dependent on external demand.

Source: Affin Hwang Research - 6 Mar 2018