Weak Demand for Manufactured and Agriculture Goods

Malaysia’s export growth slowed from 14% yoy in April to 3.4% in May, lower than market expectations of 6.4%. The slowdown was attributed to the sharp contraction in exports of agriculture goods, which declined by 21.9% (-0.8% yoy in April). Similarly, demand for manufactured goods slowed significantly from 16.8% yoy in April to 3.2% in May. This was despite the sharp increase in exports of mining goods, which rose sharply from 4.2% yoy in April to 40% in May due to strong exports of crude petroleum and liquefied natural gas (LNG).

In the manufactured goods cluster, exports of electrical & electronic (E&E) products slowed sharply from 21.3% yoy in April to 2.1% in May, and was reflected across the board. In particular, demand for thermionic valves & tubes and photocells, which has the highest share in E&E group of about 55.8%, slowed from 41.2% yoy in April to 9.1% in May. This was followed by the declines in other components, including parts & accessories for office machines (-17.3%), electrical apparatus & parts (-15.3%), as well as telecommunication equipment, parts & accessories (-9.4%).

However, in the months ahead, we expect demand for E&E products to remain healthy, as global demand for semiconductors remains resilient, expanded further by 21% yoy in May (20.2% in April), due to higher sales from all major economies, including China and US. Exports of other manufactured products, such as demand for machinery & appliances contracted by -11.5% yoy in May, while exports of chemicals & chemical products slowed by 14.6% and refined petroleum products by 1.7% during the same month. In contrast, exports of optical & scientific equipment and manufactures of metal rose by 13.4% and 44.7% respectively.

On exports of agriculture goods, demand for palm oil & palm-based agri products fell sharply from -0.8% yoy in April to -24.7% in May, as reflected in the contractions of both exports volume and average unit value.

However, exports of mining goods increased sharply from 4.2% yoy in April to 40% in May, driven by higher demand for crude petroleum, which expanded by 45.8% yoy in May (22.7% yoy in April), as reflected in both higher export volume and average unit value. Likewise, demand for liquefied natural gas (LNG) also turned around sharply from a decline of 12.5% yoy in April to 61% in May, the highest growth posted in nine months, after three consecutive months of contraction. This was attributed to higher export volume, despite lower average unit value showed in May.

Exports to US and Asean Region Fell Sharply in May

In terms of destination, exports to all major trading partners, except Japan, contracted or slowed in May. The shipment to US fell from 1.7% yoy in April to -5.6% in May, on lower demand for E&E and petroleum products. Exports to Asean also declined from 13.6% yoy in April to -1.9% in May. The sharp declines were led by Indonesia (-20.1%), and followed by Singapore (-9.8%) and Philippines (-4.1%). Meanwhile, exports to China also slowed from 22% yoy in April to 7.4% in May. Exports to EU expanded by 11.4% yoy in May, albeit slightly lower than the prior month of 19.5% growth, supported by higher shipment of manufactured goods, mainly on petroleum products, manufactures of metal as well as palm oil-based manufactured products (19.5% yoy in April). However, exports to Japan turned around sharply from -21.4% yoy in April to 16% in May, attributed mainly to higher demand for LNG. The latest Tankan Survey, released by the Bank of Japan, showed overall business conditions in manufacturing sectors slowing down from 24 in 1Q18 to 21 in 2Q18, signalling that demand from Japan for manufactured goods will likely remain weak.

Across-the-board Declines in Gross Imports in May

Gross imports slowed by 0.1% yoy in May, after the increase of 9.2% in April. Imports of intermediate goods declined further by 5.3% yoy in May, for six straight months, which reflected some cautiousness among businesses/exporters, providing also an indication that the exports growth remains uncertain in the coming months. Meanwhile, imports of consumption goods also declined by 10.2% yoy in May (-1.8% in April), indicating some slowdown in domestic consumption during the month. Imports of capital goods also fell by 0.7% yoy in May (+4.8% in April).

Against the backdrop of slowdown in both exports and imports, trade balance narrowed by 37.7% mom to RM8.1bn in May (RM13bn in April). However, on a cumulative basis, trade balance remained sizable and amounted to RM54.5bn in the first five months of 2018, a 64.9% increase compared to the same period in 2017. As for the annual trade projection, we expect the trade surplus to remain healthy in the range of RM98bn-RM100bn in 2018 (RM97.2bn in 2017). 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.

Source: Affin Hwang Research - 6 Jul 2018