• Exports growth fell by 2.9% yoy in August following two consecutive months of positive growth due to declines across all major sectors.
• In the first eight months of 2020, the trade surplus amounted to RM103bn compared to RM100bn in Jan-Aug 2019.
• We project gross export growth to decline by 5.0% for 2020 (-0.8% in 2019), with gross imports contracting by 6.0% in 2020 (-3.5% in 2019).

Exports Growth Weighed Down by Almost All Major Sectors in August

Malaysia’s exports growth fell in August by 2.9% yoy (3.1% in July), following two consecutive months of positive growth. The contraction in exports growth was due to declines across all major sectors during the month. Exports of mining goods fell by 25.9% yoy (-30.2% in July), while exports of agriculture goods declined by 4.5% yoy in August (+30.4% in July). Exports of manufactured goods also fell but marginally by 0.1% yoy compared to a growth of 4.7% in July.

The slight fall in exports of manufactured goods in August was due to lower demand for manufactures of metal (-30.7%), chemical and chemical products (-23.4%), machinery, equipment and parts (-11.3%) and petroleum products (-15.9%). However, exports of E&E products remained in positive territory in August, rising by 7.6% yoy, led by higher demand of telecommunications equipment, parts and accessories (8.8%) and thermionic valves, tubes and photocells (9.5%). Exports of other manufactured goods also rose during the month, such as rubber products (66.8%), optical and scientific equipment (28.6%) and iron and steel products (23.3%).

Besides that, the decline in exports of agriculture products was mainly due to lower exports of sawn timber and moulding (-39.2%) as well as natural rubber (-32.9%). Meanwhile, the decline in exports of mining goods was weighed down by lower demand for liquefied natural gas (LNG), which fell by 49.1% yoy during the month.

Fall in Exports to All Major Trading Partners Except for US and China

Malaysia’s exports to its major trading partners showed a mixed performance in August. For instance, exports to the US expanded for the third consecutive month by 13.6% yoy (+28.6% yoy in July) due to higher exports of manufactured goods. As for China, exports rose for the fifth straight month by 20.9% yoy in August from 13.9% in July, supported by higher demand for exports of E&E products, iron and steel products and other manufactures.

In contrast, exports to the EU fell by 4.3% yoy in August (+3.4% in July), dragged by decreases in exports of E&E and manufactures of metal. Similarly, exports to ASEAN countries declined by 8% yoy in August from an expansion of 0.1% in July, dragged by lower exports of crude petroleum, manufactures of metal, chemicals and chemical products as well as machinery, equipment and parts.

Exports to Japan fell for the second consecutive month in August by 13.8% yoy from -2.8% in July, as reflected in lower exports of LNG and manufactures of metal.

Gross imports declined by 6.5% yoy due to lower intermediate and capital goods

Gross imports contracted for the sixth consecutive month by 6.5% yoy in August from 8.7% in July, weighed down by imports of intermediate goods and capital goods. Imports of intermediate goods, which are used as an indicator of export performance going forward, declined by 5.6% yoy in August (-17.3% in July) due to lower imports of processed industrial supplies. Meanwhile, imports of capital goods also fell by 15.5% yoy (-19.8% in July), due to lower imports of parts of machinery and mechanical appliances. In contrast, in tandem with recovery in domestic demand, imports of consumption goods rose for the third straight month by 2.9% yoy in August (+0.1% in July), as reflected in higher imports of durables, especially for machinery and mechanical appliances. During the month, the trade surplus narrowed to RM13.2bn in August compared to RM25.2bn in July. In the first eight months of 2020, the country’s trade surplus amounted to RM103bn (RM100bn in Jan-Aug 2019).

Going forward, despite the decline in export growth in August, we expect the country’s trade performance to be continually supported by a pickup in global economic activity and healthy global demand for semiconductors. In tandem with the reopening of economies in other countries, and improvement in intra-regional trade, we also anticipate regional demand to underpin trade performance. Despite Malaysia’s manufacturing Purchasing Managers’ Index (PMI) falling to 49.3 in August from 50 in July, it noted that demand continued to recover, whereby the pace of moderation was similar to that registered in June and July, and not as sharp as in 2Q20. Furthermore, momentum of production also remained stable despite having slowed from the initial ease in lockdown measures. Besides that, as E&E exports account for 40.3% of total exports, the sustained improvement in global semiconductor sales of 4.9% yoy in July (5.1% in June) bodes well for exports growth. We also expect the economic recovery in China as reflected in its manufacturing PMI, retail sales and industrial output to provide some support for Malaysia’s exports.

However, exports growth may still be subject to some downside risks. The risk of a second wave or third wave of Covid-19 in other countries (possibly in Malaysia) could lead to a re-imposition of containment measures which will disrupt global supply chains and hamper external demand. Another possible downside risk would be a reescalation of trade tensions between the US and China, especially as both countries remain as main trading partners.

For the first eight months of the year, growth in exports declined by -5.2% yoy (0.6% in Jan-Aug 19), with imports falling by -6.6% (-3.9% in Jan-Aug 19). We believe the sharp contraction in exports growth already bottomed out in 2Q20. Overall, we project gross export growth to decline by 5.0% for full-year 2020 (-0.8% in 2019), with gross imports contracting by 6.0% in 2020 (-3.5% in 2019).

Source: Affin Hwang Research - 29 Sept 2020