• Malaysia’s exports turned around and register a positive growth of 8.8% yoy in June (-25.5% in May) due to further re-opening of the economy.
• The trade surplus narrowed slightly to RM64.6bn in the first six months of 2020, compared to RM67.4bn in the same period of 2019.
• In 2020, we are projecting exports of goods and services (in real terms) contracting by between 7.5-8.5%, sharply lower than -1.3% in 2019, with imports of goods and services declining by between 6.5-7.5% in 2020 (-2.5% in 2019).

Positive growth in exports across some major products in June

Malaysia’s exports turned around to register a positive growth of 8.8% yoy in June, after recording three consecutive months of negative growth (-25.5% in May). The turnaround in exports was partly attributed to the Recovery Movement Control Order (RMCO) from 10th June 2020, with further re-opening of the economy (especially factory operations). Growth in manufactured exports turned around from -19.9% yoy in May to 15.9% in June, supported by the increase in demand for E&E products, as reflected in telecommunications equipment, parts and accessories (35.9%) and thermionic valves, tubes and photocells (13.9%). Exports of other manufactured goods also rebounded to positive growth during the month, such as machinery, equipment and parts (29.3%), optical and scientific equipment (35.8%), manufactures of metal (9.2%) and palm oil / palm oil based products (45.3%). Exports of agriculture goods rose by 30% yoy in June (-21.3% in May), due to higher demand for palm oil and palm oil-based agriculture products.

In contrast, exports of mining goods contracted by 45.6% yoy in June (-49.1% in May), due to weak demand for liquefied natural gas (LNG) and crude petroleum. Exports of crude petroleum declined by 70.9% in June, compared to 69% in May, see Fig 1. In the first half of 2020, growth in gross exports contracted by 6.8% yoy compared to -0.9% in 1H2019, while gross imports fell by 7.2% in 1H2020 (compared with -2.2% in 1H2019). Trade surplus narrowed slightly to RM64.6bn in the first six months of 2020, compared to RM67.4bn in the corresponding period of 2019.

Higher exports to major trading partners, especially ASEAN and China

Malaysia’s exports to almost all its major trading partners expanded in June. In particular, with China’s economy showing some early signs of recovery in 2Q20, Malaysia’s exports to China rose by 46.8% yoy in June (+4.5% in May), supported by higher demand for iron and steel products, E&E products, other manufactures and petroleum products. Exports to ASEAN countries turned around and expanded by 1.3% yoy in June (-30.6% in May), supported by higher exports of machinery equipment and parts, optical and scientific equipment and E&E products. Exports to the US rose by 27.6% yoy in June (-9.3% in May), reflecting higher exports of optical and scientific equipment, E&E products, wood products, rubber products as well as machinery equipment and parts

Exports to Japan also turned around by 9.8% yoy in June (-33% in May), supported by demand for LNG, E&E products, manufactures of metal, rubber products, optical and scientific equipment. In contrast, exports to the EU declined by 6.6% yoy in June (-32.9% in May) due to weaker demand for rubber products, palm oil and palm oilbased agriculture products.

Gross imports declined by 5.6% yoy in June due to intermediate goods

Gross imports contracted by 5.6% yoy in June (-30.4% in May), the fourth consecutive months of decline, but at a smaller magnitude compared to May 2020. Imports of intermediate goods, which are used as an indicator of export performance in the months ahead, declined by 10.8% yoy in June, albeit lower than -27.8% in May. However, imports of capital goods turned around into positive territory in June, expanding by 2.8% (-27.8% in May), due to higher imports of electrical machinery equipment and parts, which cushioned lower imports of processed industrial supplies, particularly copper. Imports of consumption goods also rebounded by 9% yoy in June (-21.9% in May), with higher imports of household consumption of food and beverages. In tandem with sharp decline in imports relative to exports, the country’s trade balance doubled and widened to a surplus of RM20.9bn in June (RM10.4bn in May).

The recovery in exports growth was reflected earlier in Malaysia’s manufacturing Purchasing Managers’ Index (PMI), which rose to 51 in June (45.6 in May), surpassing the expansion threshold of 50 for the first time since December 2019. This was attributed to the relaxation of MCO restrictions, which enabled factory operations to restart. However, in the months ahead, we believe external demand will continue to remain uncertain and drag on the manufacturing sector, especially in the export-oriented industries. There are some downside risks associating with weak global growth and possible prolonged global supply chain disruptions dampening Malaysia’s trade performance. Intra-regional trade will likely be impacted by the possibility of lockdowns and quarantine rules of Asean countries. In 2020, we are projecting exports of goods and services (in real terms) contracting by between 7.5- 8.5%, sharply lower than -1.3% in 2019, with imports of goods and services contracting by between 6.5-7.5% in 2020 (-2.5% in 2019). Another downside risk for the country’s trade performance hinges on renewed trade tensions between the US and China, which may result in the resumption of a trade war.

Nevertheless, with the commencement of the RMCO in the country, where almost all businesses/factories are allowed to operate at a higher capacity, this would continue to support trade performance in the near term. Malaysia’s exports of E&E products will also be supported by improvement in sales of global semiconductors. World Semiconductor Trade Statistics (WSTS) is projecting annual sales of global semiconductors to increase by 3.3% in 2020 and 6.2% in 2021.

Source: Affin Hwang Research - 29 Jul 2020