• Malaysia’s export growth rose to 10.8% yoy in December (4.6% in November), led by exports of manufacturing and agriculture products.
   
• Gross imports turned around and expanded by 1.6% yoy in December from -9% in November, ending nine consecutive months of decline.
   
• Going into 2021, we believe growth in exports will likely recover to a rate of 7.0-7.5% (1.4% in 2020), compared with growth in imports of 7.5-8.0% (-6.3% in 2020).

Export growth in December boosted by manufactured and agriculture products

The growth in Malaysia’s exports rose further to 10.8% yoy in December (4.6% in November), remaining in positive territory for the fourth consecutive month since August. Higher growth in December’s exports was supported by increased demand for both manufactured and agriculture products. Exports of manufactured goods rose by 12.4% yoy from 8.1% in November, while exports of agriculture goods increased by 47.1% yoy in December from 6% in November. However, exports of mining goods contracted sharply by 31% yoy in December from a decline of 34.6% yoy in November.

Higher exports of manufactured goods were led by a sustained increase in exports of electrical and electronic products (+18.1%), due to higher demand for telecommunications equipment, parts and accessories (+18.3%) and thermionic valves and tubes and photocells (+24.3%). The increase in exports of E&E was in line with the recent increase in global semiconductor sales, up 7% yoy in December from 6% in November. This was its tenth consecutive month of increase and its fastest growth since March 2020. Other exports of manufactured goods that increased during the month were rubber products (+126.9%), manufactures of metal (+34.9%), wood products (+12.3%), optical and scientific equipment (+4.6%), chemical and chemical products (+0.9%) and machinery and appliances (+2.4%). In contrast, exports of petroleum products declined by 22% yoy and transport equipment by 29.9% yoy in December.

Exports of agriculture goods were supported by an increase in demand for palm oil and palm oil-based products, which expanded by 66.9% yoy in December. In contrast, the decline in exports of mining goods was due to contraction in exports of liquefied natural gas (-23.9%) and crude petroleum (-42.9%).

Exports to All Major Export Markets Were Higher in December

Exports to China rose for the ninth straight month by 13.5% yoy in December (13.2% in November), supported by higher demand for E&E products and manufactures of metal. Similarly, exports to the US rose for the seventh consecutive month by 18.2% yoy in December from 24.6% in November. Meanwhile, exports to the EU expanded for the fourth consecutive month by 14.5% in December from 7.2% in November.

Exports to Japan also maintained positive growth for the second month in a row by 13.7% yoy from 3.5% in November, while exports to ASEAN countries rebounded by 5.6% from a decline of 2.2% yoy in November, the first positive growth since September 2020, due to higher exports of E&E products.

Higher Gross Imports Led by Imports of Consumption Goods

Gross imports turned around with an expansion of 1.6% yoy in December from -9% in November, ending nine consecutive months of decline. However, higher imports were led mainly by imports of consumption goods, which increased by 3.3% (-7.2% in November) amid higher imports of durable goods and food and beverages, mainly for household consumption. Imports of intermediate goods, which are used as an indicator of export performance going forward, declined by a slower pace of 5% yoy in December (-10.6% in November) due to lower imports of fuel and lubricants and parts and accessories. Imports of capital goods declined by 2% yoy in December from 26.6% yoy in November amid lower imports of transport equipment. Due to higher growth of exports relative to imports, the trade surplus widened to RM20.7bn in December compared to RM17.1bn in November.

For 2020, growth in exports declined for the second consecutive year by 1.4% yoy compared to -0.8% in 2019, its lowest annual growth since 2009, in line with lower global trade weighed down by the negative impact of the pandemic. Import growth also declined for the second year in a row to 6.3% yoy in 2020 compared to -3.5% in 2019. As a result, Malaysia registered a higher trade surplus of RM184.8bn in 2020 from RM145.7bn in 2019. Going into 2021, we believe Malaysia’s export growth will likely recover to 7.0-7.5% (-1.4% in 2020), compared with import growth of 7.5-8.0% (-6.3% in 2020).

In the months ahead, we believe there is still some downside risk to external demand from the elevated number of Covid-19 cases in the Asean region, as well as in other countries such as the US, UK, Germany and Japan, which has led to the extension or reinstatement of containment measures. In the latest World Economic Outlook report, the International Monetary Fund (IMF) upgraded its projection for the global economy to expand by 5.5% for 2021 (-3.5% in 2020), a 0.3 percentage point increase from October’s forecasts, partly due to expectations of the availability of multiple approved vaccines and the start of vaccinations in some countries, which may support economic activity further. Furthermore, IMF expects China’s economy to expand by 8.1% in 2021, and India’s economy to expand by 11.5%. This will likely support intra-regional trade and the region’s total exports. Apart from a better external environment, we believe Malaysia’s exports will be supported by higher global semiconductor sales. The Semiconductor Industry Association (SIA) projected a growth of 8.4% yoy in 2021 to US$469.4bn from an estimated growth of 5.1% to US$433.1bn in 2020. Malaysia’s E&E exports account for 43.3% of total exports.

Source: Affin Hwang Research - 2 Feb 2021