Supported by Higher Demand for Manufactured and Mining Goods

Malaysia’s export growth rose strongly by 14% yoy in April (2% in March), significantly higher than market expectations of 6.8%. This was due mainly to higher demand for manufactured goods, which increased from 3.7% yoy in March to 16.8% in April. The manufactured goods accounted for 83.7% of Malaysia’s total exports. The sharp increase was reflected almost across the board, supported mainly by higher exports of electrical & electronic products, which rose sharply by 21.2% yoy in April (8.8% in March).

In particular, exports of thermionic valves & tubes & photocells rose sharply to 41.1% yoy in April (21.7% in March), which offset the contraction in other E&E subcomponents, include parts & accessories for office machines (-8.1%), telecommunication equipment, part & accessories (-2.2%), as well as electrical apparatus and parts (-12.5%). Similarly, exports of other manufactured products, including demand for machinery & appliances (6.2%), chemicals & chemical products (17.8%), refined petroleum products (16.7%) and optical & scientific equipment (7.7%) rose significantly in April.

Exports of mining goods also increased from 1.5% yoy in March to 4.2% in April, driven by higher demand for crude petroleum, which expanded by 22.7% yoy in April (18.4% in March), as reflected in both higher export volume and average unit value. In contrast, demand for liquefied natural gas (LNG) stayed lacklustre, declining further to 12.5% yoy in April, its third consecutive month of contraction and the lowest growth since November 2016. This was consistent with lower export volume and average unit value during the month, due to weak demand from Japan.

Exports of agriculture goods declined by 0.8% yoy in April, but the magnitude of decline moderated, as compared to the sharp contraction of -24% yoy in February and -7% in March.

Stronger Exports to Almost All Major Trading Partners in April

In terms of destination, exports to China improved significantly, which turned around from -4.7% yoy in March to 22% in April, led by higher demand for E&E products, as well as chemicals & chemical products. Likewise, exports to the EU also posted double-digit growth in April, expanding by 19.5% yoy (5.3% in March) due to higher demand for E&E products and manufactures of metal. Exports to ASEAN rose by 13.6% yoy in April (-2.7% in March) due to higher shipments of E&E products, transport equipment and refined petroleum product. Shipments to the US also improved, turning around from -0.1% yoy in March to 1.7% in April, supported by higher demand for transport equipment, refined petroleum products as well as optical & scientific equipment. However, exports to Japan contracted for the third straight month, by 21.4% yoy in April, compared to -3.5% in March, reflecting lower demand and continued subdued LNG prices.

Imports of Intermediate Goods Remained Weak in April

Gross import growth rebounded from -9.6% yoy in March to 9.1% in April, exceeding market expectations of 3.8%. This was driven by higher imports of capital goods, which rose by 4.8% yoy in April (-30.5% in March). However, the increase was partly due to a lower base in the corresponding period of last year. On a month-on-month basis, imports of capital goods declined by 11% in April. Imports of intermediate goods contracted for the fifth straight month, which declined by 11.9% yoy in April (-14.4% in March), dragged by lower imports of parts & accessories of capital goods (-30.4%) and F&B (-0.9%).

Imports of intermediate goods, which account for about 47.5% of total imports, is a leading indicator of the performance of future exports. This was also in tandem with the slowdown in Malaysia’s manufacturing PMI for the month of May, which fell further from 48.6 in April to 47.6. This was the fourth consecutive month of decline and has been below the 50 level since January 2018. This indicates that manufacturers may be demanding less intermediate inputs in view of uncertainty in overseas demand. Similarly, imports of consumption goods also fell for another month to 1.8% yoy in April (-12.4% yoy in March).

In April, the country’s trade surplus remained substantial at RM13.1bn (RM14.7bn in March). In the first four months of 2018, the cumulative trade surplus amounted to RM46.4bn (RM27.5bn in Jan-April 2017). We believe that the trade surplus will remain healthy in the range of RM98bn-RM100bn in 2018 (RM97.2bn in 2017). Going forward, we believe the performance of the country’s exports will depend on the global economy, and if it continues to improve and global electronics demand remains strong, we expect Malaysia’s exports of goods and services (in real terms) to expand by 5.4% for 2018, albeit lower than 9.6% in 2017 partly due to the high base effect.

According to the Semiconductor Industry Association (SIA), the global semiconductor sales are projected to expand by US$463bn in 2018, an increase of 12.4% (21.6% in 2017), reflected in all major categories, such as memory, followed by analog in all geographical regions. Nevertheless, the Markit global manufacturing PMI slowed from 53.5 in April to 53.1 in May, the lowest level since August 2017. While still above the 50-threshold mark, May’s global PMI indicates that global manufacturers are turning slightly more cautious on new orders and international trade, dampened by uncertainty in global economic conditions, mainly due to current US-China trade war tension.

Source: Affin Hwang Research - 6 Jun 2018