Lower exports of manufactured goods on lower E&E demand

Growth in Malaysia’s exports continued to decline in November albeit at a slower rate of 5.5% yoy, as compared to a decline of 6.7% in October, due to declines in most main sectors. In particular, exports of manufactured goods contracted by 2.8% yoy in November, but at a smaller decline as compared to -4.5% in October. The decline in exports was also reflected in lower demand for mining goods, which contracted further to -28.7% in November from -24.6% in October. Similarly, exports of agriculture goods registered a decline of 4.4% yoy in November as compared to a decline of 8.9% in October. The smaller decline in exports of manufactured goods in November was due to higher demand for iron and steel products, optical and scientific equipment, processed food as well as non-metallic mineral products. However, exports of E&E products, which constituted 34.1% of total exports, contracted by 11.6% in November after a smaller decline of 3.2% in October, led by the decline in demand for telecommunications equipment, parts and accessories (-15.7%), electrical apparatus and parts (-6.4%) as well as thermionic valves, tubes and photocells (-12.0%). In contrast, exports of parts and accessories for office machines turned around to +3.7% yoy in November after falling by 0.7% in October. Other exports of manufactured goods remained weak, as reflected in petroleum products (-17.2%), chemical and chemical products (-5.1%) and manufactures of metal (-2.5%), see Fig 1.

Demand for exports of mining goods contracted due to declining exports of liquefied natural gas (LNG), mainly due to a lower exports volume and Average Unit Value (AUV), while lower growth in exports of agriculture goods was reflected in demand for palm oil and palm oil-based agriculture products, specifically palm kernel oil, which declined by 34.3% yoy in November.

Exports to ASEAN, EU and Japan declined in November

Malaysia’s exports to ASEAN contracted sharply by 8.8% yoy in November from -2.8% in October, weighed down by lower exports of E&E products, crude petroleum and petroleum products. Likewise, exports to the EU declined by 4.3% yoy in November, albeit slower than the 5.2% decline in October, attributed by lower demand for E&E products, manufactures of metal as well as palm oil and palm oil-based agriculture products. Exports to Japan continued to decline for the third month in a row, from -20.1% yoy in October and -16.0% in November, due to lower exports of LNG, wood products and E&E products. However, Malaysia’ exports to China rebounded to 4.1% yoy in November after falling for three consecutive months since August 2019, supported by expansion in the exports of iron and steel products, optical and scientific equipment, palm oil and palm-oil based agriculture products as well as processed food. Similarly, exports to the US registered a higher growth of 6.5% yoy in November from 2.7% in October, attributed to higher exports of manufactured goods, particularly for wood products, optical and scientific equipment, E&E products, non-metallic mineral products as well as palm oil-based manufactured products.

The better demand from Malaysia’s two main trading partners, China and the US, synced closely with the improvement in global manufacturing activity. The global manufacturing PMI was stable at 50.1 in December (50.3 in November), as was Caixin’s China PMI at 51.5 in December (51.8 in November). We believe the recovery in Malaysia’s manufacturing PMI to the 50 level in December (49.5 in November) also likely reflected higher demand for Malaysia’s E&E products in the near term. The “phase one” trade deal between China and the US which is likely to be signed on 15th January will lead to better sentiment amongst global manufacturers and possibly better demand for Malaysia’s exports.

Imports declined by 3.6% yoy in November

Gross imports declined at a smaller magnitude of 3.6% yoy in November, as compared to a decline of 8.7% in October, mainly due to the recovery in imports of intermediate and consumptions goods. Imports of intermediate goods, which is an indicator of export performance, rose by 1.8% yoy in November (-5.1% in October) while imports of consumption goods increased by 1.9% yoy (-5.0% in October). Nevertheless, imports of capital goods continued to decline by 4.3% yoy in November (-11.5% in October).

For the first eleven months of 2019, Malaysia’s export growth declined and averaged -2.1% yoy in November vs 7.6% in the corresponding period last year, due partly to lower exports of E&E products from weak global semiconductor sales, as well as the impact of the trade dispute between the US and China, which disrupted the global supply chain last year.

The country’s trade surplus narrowed but remained high at RM6.5bn in November, compared to RM17.3bn in October. For the first eleven months of 2019, the trade surplus widened to RM124.8bn compared to RM112.8bn in the same period last year. With gross exports exceeding gross imports, we project Malaysia’s trade surplus to reach RM130bn for 2019, higher than RM123.7bn in 2018, and the current account surplus to remain substantial at RM50bn for 2019 (RM33.5bn or 2.4% of GNI in 2018).

Source: Affin Hwang Research - 6 Jan 2020