• Malaysia’s export growth slowed sharply from 13.6% yoy in September to 0.2% in October, but remained in positive territory for the second consecutive month (-2.9% in August)
• In the first ten months of 2020, the country’s trade surplus rose higher and amounted to RM147bn compared to RM126.4bn in Jan-Oct 2019
• We project gross export growth to decline by 5.0% in 2020 (-0.8% in 2019), with gross imports contracting by 6.0% (-3.5% in 2019).

October’s export growth dragged by decline in mining exports

Malaysia’s export growth slowed sharply from 13.6% yoy in September to 0.2% in October, where the increase in manufactured exports was offset by a decline in mining exports. Exports of manufactured goods rose by 2.5% yoy in October, albeit sharply lower than 16.3% in September. Exports of agriculture goods expanded by 28.7% yoy in October (26.6% in September), but exports of mining goods contracted sharply by 47.2% yoy in October from -27.4% in September.

During the month, exports of manufactured goods were led by sustained demand for rubber products (+127.3%), machinery, equipment and parts (+3.2%), iron and steel products (+21.4%) as well as electrical and electronic products (E&E), which rose by 3%, led by higher demand of telecommunications equipment, parts and accessories (42.3%). However, exports of petroleum products declined by 25.6% yoy in October. Exports of other manufactured goods, for example, manufactures of metal (-10.1%), chemical and chemical products (-16.1%) and optical and scientific equipment (-3.0%), also fell in October.

Higher exports of agriculture goods in October were supported by an increase in demand for palm oil and palm oil-based products. In contrast, the decline in exports of mining goods was led by a contraction in exports of liquefied natural gas (-57.7%), crude petroleum (-44.8%) and petroleum condensates and other petroleum oil (-95.1%).

Positive growth in exports to the US, China and EU in October

Malaysia’s exports to US, China and EU continued to show increases in October. Exports to China rose for the seventh straight month, but at a slower pace of 4.9% yoy in October (41.9% in September), supported by higher demand for iron and steel products, E&E products, other manufactures, and manufactures of metal and rubber products. Similarly, exports to the US rose for the fifth consecutive month by 25.6% yoy (22.1% in September), reflecting higher exports of E&E products, wood products, rubber products, machinery equipment and parts as well as palm oil and palm oilbased agriculture products. Exports to the EU expanded for the second consecutive month by 4.7% in October (15.8% in September), led by an increase in rubber products and palm oil and palm oil-based agriculture products.

In contrast, exports to ASEAN countries declined by 3.6% yoy in October (+6.7% in September), due to lower exports of crude petroleum, petroleum products and manufactures of metal. Exports to Japan declined for the fourth consecutive month in October by 6% (-11.3% in September), as reflected mainly in lower exports of LNG.

Gross imports declined due to lower intermediate and capital goods

Gross imports contracted for the eighth consecutive month by 6% yoy in October from -3.6% in September, 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, fell at a slower pace of 6.1% yoy (-17.7% in September) due to lower imports of processed industrial supplies. Meanwhile, imports of capital goods declined by 17.1% yoy in October (-2.2% in September).

In contrast, in tandem with a recovery in the country’s domestic demand, imports of consumption goods rose for the fifth straight month by 6.5% yoy in October (11.2% in September), as reflected in higher imports of non-industrial transport equipment. During the month, the trade surplus widened to RM22.1bn compared to RM21.9bn in September. On a cumulative basis, in the first ten months of 2020, the country’s trade surplus rose higher and amounted to RM147bn (RM126.4bn in Jan-Oct 2019).

For the first ten months of the year, growth in exports declined by 3.3% yoy (-1.8% in Jan-Oct 2019), with growth in imports declining sharply by 6.8% yoy (-3.3% in JanOct 2019). For the remaining months of 2020, we anticipate export growth to remain healthy supported by improving external demand, especially in line with the strong recovery in China’s economic growth. In tandem with sustained healthy global demand for semiconductors, we also expect exports of E&E to underpin Malaysia’s export performance. According to the Semiconductor Industry Association (SIA), global sales of semiconductors have increased for the eighth consecutive month, rising 5.8% yoy in September to US$37.9bn (US$36.2n in August), signalling strong demand despite ongoing uncertainties surrounding the pandemic.

However, there continues to be downside risks to the outlook of Malaysia’s trade performance. The resurgence of Covid-19 cases in some countries especially in main trading partners such as the US and EU poses a risk to external demand for Malaysia’s exports. Furthermore, the recent imposition of lockdown measures in several countries may lead to further disruption in the global value chain, if prolonged. 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). Going into 2021, apart from improvement in the external environment, the recent signing of the Regional Comprehensive Economic Partnership (RCEP), where Malaysia is among the 15 member countries, will likely provide some support to external demand and assist in promoting Malaysian companies to larger market access especially for exporters and SMEs.

Source: Affin Hwang Research - 30 Nov 2020