• Malaysia’s exports rose sharply by 31% yoy in March, almost doubled from 17.6% in February, led by exports of manufactured and agriculture goods
• Gross imports expanded for the fourth consecutive month by 19.2% yoy in March from 12.7% in February, led mainly by imports of intermediate and capital goods
• In 2021, we believe export growth will expand by between 6.5-7.0% yoy (-1.4% in 2020), compared with import growth of 7.0-7.5% yoy (-6.3% in 2020).

Export Growth Boosted by Manufactured and Agriculture Goods

Malaysia’s exports rose sharply by 31% yoy in March, almost doubled from 17.6% in February, its seventh consecutive month of positive growth since August 2020. This was also the strongest yoy growth in 44 months since August 2017. Apart from the low base effect, the sharp increase in export growth was led by strong demand for manufactured and agriculture goods. Exports of manufactured goods rose sharply by 34.9% yoy in March from 20.1% in February, while exports of agriculture goods increased by 43.8% yoy in March (9.7% in February). In contrast, exports of mining goods contracted by 24.1% yoy in March from -7.8% in February.

The increase in exports of manufactured goods was reflected in exports of electrical and electronic (E&E) products, which expanded strongly by 48% yoy in March, with higher demand for E&E products, underpinned by demand for semiconductors, especially for smart devices, 5G network and the automotive industry amid the recovery in global economic activities. Other exports of manufactured goods that increased during the month were manufactures of metal (+88.4%), chemical and chemical products (+32.3), optical and scientific equipment (30.8%), wood products (64.6%) and machinery and appliances (49.7%). In contrast, exports of transport equipment (- 55.2%) and petroleum products (-38.9%) declined in March.

Exports of rubber products rose by a robust growth of 210.6% yoy in March, its seventh straight month of triple-digit expansion. Exports of agriculture goods were also supported by exports of palm oil and palm oil-based products, which rose by 43.8% yoy in March. In contrast, a continued decline in exports of mining goods was due to weak exports of liquefied natural gas (-24.3%) and crude petroleum (-27.2%).

Strong Increase in Exports to All Major Markets in March

Exports to China rose sharply by 46.6% yoy in March for the twelfth month in a row from 35.8% in February, supported by higher demand for E&E products, manufactures of metal, iron and steel products, and chemicals and chemical products. Similarly, exports to the US rose by 67.5% yoy in March from 26% in February led by strong exports of rubber and E&E products. Meanwhile, exports to the EU also expanded for the seventh consecutive month by 45.9% yoy in March from 15.3% in February due to higher demand for rubber, E&E products and transport equipment.

Exports to ASEAN countries also rose by 17.4% yoy in March (13.7% in February), for its fourth consecutive month, due to higher exports of E&E and machinery, equipment and parts. Meanwhile, exports to Japan rose further from 2.4% yoy in February to 14.4% in March, attributed to higher demand for rubber products, manufactures of metal, optical and scientific equipment and E&E products.

Higher Imports Led by Increase in Intermediate and Capital Goods

Gross imports expanded by 19.2% yoy in March from 12.7% in February, where the strong double-digit growth was led mainly by imports of intermediate and capital goods. Imports of intermediate goods, which are used as an indicator of export performance in the months ahead, rebounded strongly by 12.4% yoy in March from a decline of 0.1% in February, with higher imports of fuel and lubricants as well as industrial supplies. Similarly, imports of capital goods rose by 93.4% yoy in March (39% in February) amid higher imports of machinery and mechanical appliances. However, imports of consumption goods slowed from 17.6% yoy in February to 13% in March. With higher exports relative to imports, the country’s trade surplus widened to RM24.2bn in March compared to RM17.9bn in February. On a cumulative basis, trade surplus balance remained sizeable at RM58.6bn in 1Q21, compared to RM37bn in the corresponding period of 2020 (RM59.9bn in 4Q20). In 1Q21, export growth averaged a positive growth of 18.4% yoy, sharply higher than 0.3% in 1Q20 (5.2% in 4Q20).

In the months ahead, we believe exports will remain in strong positive growth in 2Q21, due to low base effect as well as sustained healthy demand for Malaysia’s E&E products, which account for 36% of total exports. The monthly global semiconductor sales in 1Q21 was strongly supported by sales into the China market as well as US and Europe regions. Semiconductor Industry Association (SIA) projected that global semiconductor sales will expand by 10.9% yoy in 2021 or US$488.3bn from 6.8% or US$440.4bn in 2020. Recent economic indicators continued to show sustained recovery in global economic activity, especially in China. As China remains one of Malaysia’s main export partner accounting for 15.3% of total exports, the strong demand will support Malaysia’s exports as well as the region’s external demand.

While there will be some downside risk to external demand from rising and elevated number of Covid-19 cases in the Asean region, as well as other countries such as the US, UK, Germany and Japan, we believe any extension or reinstatement of containment measures will be less restrictive and stringent compared to 2020. Nevertheless, the slow rollout of vaccines and insufficient supply across all countries may be potential headwinds for economic recovery in the Asean region. For 2021, we believe that exports growth will recover and expand by between 6.5-7.0% yoy (-1.4% in 2020), compared with growth in imports of 7.0-7.5% yoy (-6.3% in 2020).

Source: Affin Hwang Research - 30 Apr 2021