March exports data came in below market consensus of 9.2% at 8.4%. Though the base effect is beginning to wear off demand for electrical and electronics (E&E) as well as mining goods from the US and Europe continues to support Malaysia’s overall exports. Nonetheless for the whole of 1Q14 exports growth was stronger than the preceding quarter which could provide a strong base for a better 1Q14 GDP growth. We maintain our GDP growth estimate for the 1Q14 at 5.1%. Going forward, we err on the cautious side due to the effects of a higher than average inflation putting a damper on overall domestic consumption.

- Exports in March grew by 8.4% YoY on account of continued strength in the demand for E&E and mining goods from Asia, the USA and the EU. Though this growth pace is moderately slower than the precious month’s 12.3% rise, on a monthly comparison exports rose by 10.4%, evidence of sustained strength in overseas demand. On a seasonally adjusted basis, exports expanded by 15.8%. For the 1Q14, exports saw a 10.9% rise compared to a 2.6% fall seen in the same period in 2013.

- Imports growth on the other hand was rather subdued in March, rising by 0.5% much lower than consensus’ 5.7% following a 9.5% increase in February. This is partly due to a high base effect as the monthly comparison saw an expansion of 14.4%. In seasonally adjusted terms, imports rose by 14.5%. Year-to-date saw an increase of 5.5% versus 6.4% in 2013.

- Despite a better exports performance, trade surplus narrowed to RM9.6b from RM10.4b whilst total trade increased by 4.6% annually, from 11.0% in the previous month. - There was a 6.2% increase in the shipment of E&E (32.2% share of total exports) and strong demand for petroleum products, which increased by 35.2% due to a rise in volume (+29.8%) and average unit value (+4.2%). Exports of LNG increase by 3.2% on a 16.1% rise in average unit value whilst demand for palm oil and its products rose by 8.0%. Exports of crude petroleum fell by 6.6% on decline in volume (-9.9%).

- On shipment destination, exports to ASEAN (28.4% of exports share) rose by 10.9%. This is led by demand from Singapore, which increased by 17.5%. Demand from the EU increased by 14.1%, mainly on a surge of demand from the Netherlands (+31%), Germany (+10.7%) and the UK (+18.7). Exports were mainly E&E goods, chemicals and its products and palm oil. Demand from the US increased by 5.2% on higher exports of palm oil, manufactured of metal and machinery. Exports to Japan declined slightly, by 0.9% on lower demand for crude petroleum and LNG. Exports to China also fell, by 1.8% on lower demand for commodities. However, demand from the middle kingdom for manufactured goods rose by 4.4%.

- On imports, demand for capital goods declined by 8.8%. However, sans transport equipment, imports of capital goods increased by 5.5%. Imports of intermediate goods fell by 3.4%, mainly due to a decreased in industrial supplies. Consumption goods imports on the other hand, gained 19.6% on F&B for household consumption (+19.9%), non-durables (+22.2%) and durables (42.3%). This shows that despite penny pinching due to higher inflation, household demand remains strong.

- With a steady 10.9% rise in exports for the 1Q14 from 10.2% in 4Q14, we become increasingly more optimistic on export trajectory moving forward. This also gives a strong base to a possibly better than expected 1Q14 GDP growth, which we estimate could register a growth of 5.1% equaling the performance in the previous quarter. This also paves way for full year GDP to lean more towards 5.5% from our forecast range of 5.0% to 5.5%. However, we still err on the cautious side due to the effects of a higher than average inflation putting a damper on overall domestic consumption.

- There was a 6.2% increase in the shipment of E&E (32.2% share of total exports) and strong demand for petroleum products, which increased by 35.2% due to a rise in volume (+29.8%) and average unit value (+4.2%). Exports of LNG increase by 3.2% on a 16.1% rise in average unit value whilst demand for palm oil and its products rose by 8.0%. Exports of crude petroleum fell by 6.6% on decline in volume (-9.9%).

- On shipment destination, exports to ASEAN (28.4% of exports share) rose by 10.9%. This is led by demand from Singapore, which increased by 17.5%. Demand from the EU increased by 14.1%, mainly on a surge of demand from the Netherlands (+31%), Germany (+10.7%) and the UK (+18.7). Exports were mainly E&E goods, chemicals and its products and palm oil. Demand from the US increased by 5.2% on higher exports of palm oil, manufactured of metal and machinery. Exports to Japan declined slightly, by 0.9% on lower demand for crude petroleum and LNG. Exports to China also fell, by 1.8% on lower demand for commodities. However, demand from the middle kingdom for manufactured goods rose by 4.4%.

- On imports, demand for capital goods declined by 8.8%. However, sans transport equipment, imports of capital goods increased by 5.5%. Imports of intermediate goods fell by 3.4%, mainly due to a decreased in industrial supplies. Consumption goods imports on the other hand, gained 19.6% on F&B for household consumption (+19.9%), non-durables (+22.2%) and durables (42.3%). This shows that despite penny pinching due to higher inflation, household demand remains strong.

- With a steady 10.9% rise in exports for the 1Q14 from 10.2% in 4Q14, we become increasingly more optimistic on export trajectory moving forward. This also gives a strong base to a possibly better than expected 1Q14 GDP growth, which we estimate could register a growth of 5.1% equaling the performance in the previous quarter. This also paves way for full year GDP to lean more towards 5.5% from our forecast range of 5.0% to 5.5%. However, we still err on the cautious side due to the effects of a higher than average inflation putting a damper on overall domestic consumption.

Source: Kenanga