- Exports for the first month of the year expanded by 12.2%, beating market expectations of 7.8%. However, it is of a slightly slower pace than December’s 14.4%. The strong start of the year can be attributed to robust demand from Asia and the EU, on deliveries of electrical and electronics (E&E) and mining commodities. On a monthly comparison however, exports fell by 2.7% whilst on a seasonally adjusted basis, exports rose by 10.7%.

- Imports also began the year on a relatively high note, rising by 7.2%. Even though this is slower than the previous month’s 14.8% rise, it is still stronger than market expectations for a 2.8% fall as well as managing to remain positive despite a high base. A monthly comparison saw a 2.6% rise and a 19.0% growth in seasonally adjusted terms.

- Despite exports outperforming imports on an annual basis, trade surplus narrowed to RM6.4b from RM9.6b seen in December. However, it should be noted that it is a 94.4% annual increase. Total trade increased by 9.8% from 14.4% seen previously.

- January saw a 14.6% YoY increase in the shipment of E&E (32.1% share of exports), the strongest annual growth seen since April 2010. Exports of LNG also performed well increasing by 26.6% on a 14.5% increase in value and 10.8% rise in volume. This is followed by a 9.2% increase in exports of petroleum products and a 5.7% rise in shipment of palm oil and its products. However, there was a 2.6% fall in the exports of crude petroleum as a result of a 10.9% decrease in volume despite the 9.3% increase in unit value.

- Looking at shipment destination, exports to China increased by 27.2%, mainly on demand for petroleum and its products, palm oil as well as E&E, mainly electronic integrated circuits. This is followed by a 26.1% surge in demand from the EU, largely on E&E and a 12.2% gain in exports to Japan, on higher LNG and E&E demand. Exports to ASEAN declined by 4.8%, on account of a 10.6% fall in demand from Singapore. There were lesser demand for petroleum and its products from the region. Though exports to the USA fell by a slight 0.3%, the demand for E&E (54.3% share of total exports to the US) increased by 6.3%.

- On imports, demand for intermediate goods increased by 8.2% in January, mainly on parts & accessories of capital goods (sans transport equipment), fuels and industrial supplies whilst capital goods imports rose by 2.5% on transport equipment and industrial goods. Consumption goods imports gained 9.9% on non-durables and goods for household consumption, an expected increase in light of cultural festivities throughout January and the Lunar New Year at the end of the month.

- The new year started on a relatively high note, paving way for consistently better exports performance (ceteris paribus) throughout the year. However, there is a possibility of lower demand come February due to the Lunar New Year holidays effecting work days in China. Similarly, the harsh winters in the US may continue to tamper demand. Nevertheless, when taking these distortions out of the equation, we are expecting exports (and intermediate imports) in general to gain further in 2014. With a relatively strong exports trajectory, we maintain our GDP forecast of 5.1% for 1Q14. On continued expansion of projects under the ETP, capital imports should also continue to perform but due to uncertainties of domestic consumption as a result of price increases surrounding fiscal consolidation and uncertainty surrounding the implementation of the GST, consumer demand may taper. Thus, we are looking at 2014 GDP to expand within the range of 5.0% and 5.5%.

Source: Kenanga