Supported by Healthy Demand for Manufactured and Mining Goods

Supported by healthy demand for manufactured and mining goods, Malaysia’s exports slowed by 3.1% yoy in January from a revised 5.1% in December. This was higher than market expectations of a decline of 0.6%. Exports growth was led by expansions in both manufactured and mining sectors. Exports of manufactured goods, which accounted for 82.3% of total exports, recorded a growth of 2.9% yoy, while mining goods registered a double-digit expansion of 23.5%. In contrast, growth in the agriculture sector posted a contraction of 13.6% yoy in January.

In the manufactured goods cluster, positive growth was registered for electrical and electronic (E&E) products of 8.2% yoy (14.2% in December). Continued growth of E&E products was driven by sustained demand for telecommunications equipment, parts and accessories (17.7%), thermionic valves & tubes and photocells (7.7%) and electrical apparatus and parts (5.2%). However, parts and accessories for office machines declined for the third consecutive month by 26.4% yoy. (-30.6% in December). Other manufactured goods which also increased were chemicals and chemical products (16.7%), jewellery (90.8%), optical and scientific equipment (7.1%), textiles, apparels and footwear (1.7%) as well as wood products (5.6%).

Strong export growth of mining goods was driven by the rebound of exports of liquefied natural gas (LNG) by 37.5% yoy in January, following a decline of 2.7% in December, due to higher Average Unit Value (AUV) and volume. As for exports of agriculture goods, demand for palm oil and palm-oil based agriculture products fell by 19.5% yoy from -27.2% in December due to lower AUV.

Rebound in Exports to EU and China

The performance of exports to Malaysia’s major trading partners were almost across the board, with the exception of Japan. Malaysia’s exports to the EU turned around to register an expansion of 4.3% yoy (-4.9% in December), following two consecutive months of declines led by higher demand for manufactured goods. Similarly, exports to China rebounded to 9.1% yoy (-0.3% in December) led by increase in exports of LNG, chemicals and chemical products, palm oil and palm-oil based agriculture products, petroleum products as well as metalliferous ores and metal scrap.

Meanwhile, exports to the US and ASEAN had slowed but remained positive at 9.4% yoy and 3.4%, respectively (13.5% and 7.3%, respectively, in December). However, exports to Japan declined for the third straight month in January, albeit at a slower pace of -5% from -6.4% in December, due to lower demand for LNG, crude petroleum, E&E products as well as iron and steel products.

Imports of Intermediate Goods Declined in January

Gross imports was steady at 1% yoy for the second consecutive month in January, lower than market expectations of 1.2% increase and maintaining its weakest reading since September 2018. Imports of consumption goods slowed to 3.3% yoy from 5.7% in December. Meanwhile, imports of capital goods contracted for the fifth straight month by 3.3% yoy (-21.8% in December), while imports of intermediate goods returned to a negative growth of 0.8% yoy (+2.8 in December), indicating that export growth in the coming months may be soft. As a result of higher exports growth compared to imports, the country’s trade surplus widened to RM11.5bn in January, compared to RM10.7bn, its largest surplus since October 2018.

Going forward, we believe support for export growth will continue from demand for E&E products. However, if the US and China manage to close a trade deal following the delay of the planned increase in tariffs on Chinese imports to 25% from 10%, export growth will be sustained from healthy global growth. However, if global trade tension escalates, export growth could be weighed down by softer demand from China which is Malaysia’s largest trading partner, accounting for 29.2% of total exports in January. China’s manufacturing PMI remained in contraction for the third consecutive month in February at 49.9 (48.3 in January).

Besides that, downside to export performance could arise from the weaker manufacturing sector, as reflected by Malaysia’s manufacturing PMI in February, which dropped to 47.6 from 47.9 in January, due to lower output and new orders. Going forward, apart from sustained demand for Malaysia’s manufactured goods especially for E&E products, according to the PMI survey, over the next 12 months, Malaysian goods producers are optimistic as they forecast improved demand and planned new product launches. In addition, following a robust year in semiconductor sales of US$468.8bn in 2018 (US$405.1bn in 2017), the Semiconductor Industry Association (SIA) expects sales to rise further in 2019 to US$490.3bn although growth will be slower at 2.6% yoy from 13.7% in 2018. We believe Malaysia’s growth of real exports of goods and services will be sustained at 1.6% (1.4% in 2018). We are maintaining our full-year trade surplus forecast of about RM100bn projected for 2019 (RM120.3bn in 2018).

Source: Affin Hwang Research - 5 Mar 2019