Exports in October fell by 3.1% after a 2.0% gain previously. This is worse than the 0.3% decline expected in survey polls. However, the steeper than expected fall is largely attributed to a high base effect coupled with a tapering global demand, sans the USA. Growth uncertainties from the Eurozone, China and Japan alongside a high base effect, means a more muted exports in the 4Q14. Though momentum from the earlier part of the year and year-end demand surrounding the holiday season should help to mitigate the downside effects, the slower than expected rebound from major economies and weaker than expected 3Q14 global growth means that we have had to revise our 2014 GDP target of 6.0% to 5.8%. (2013: 4.7%)

- Exports in October fell by 3.1% YoY, the slowest since June 2013, on the back of weakening global demand and due to a very strong uptick a year ago. Exports recorded a 2.0% YoY gain in September. It is a steeper fall compared to market expectations of -0.3% YoY. Though this is by large attributed to a high base effect as October 2013 saw one of the strongest exports growth on record, the rather meagre 0.9% MoM expansion also denotes tapering of global demand, sans the USA which continued to increase orders. The seasonally adjusted growth saw a 0.7% MoM growth in exports. To date, exports grew by 7.3% compared to 0.8% seen in the same period in 2013.

- Imports on the other hand, exceeded expectations and gained 9.1% YoY, following a 1.1% moderation in the previous month. Market polls had expected a 1.4% fall. A monthly comparison saw a strong 15.8% increase and the seasonally adjusted term recorded a 17.4% gain. Year-to-date registered a 5.9% growth, slightly slower than 6.2% seen in the same period in 2013.

- Due to stronger imports, trade surplus narrowed to RM1.2b from RM9.3b. This is narrowest surplus seen since April 2012. Year-to-date surplus however, widened to RM62.3b compared to RM51.6b in the same time frame in 2013. Total trade in October grew by 2.6% from 1.6% in September, and year-to-date saw a 6.6% rise in total trade compared to 3.3% in 2013.

- On a sector basis, the biggest contributor to exports, the electrical and electronics (E&E) sector saw an annual fall of 4.5% from a 5.3% growth in October. The monthly comparison also saw a decline of 6.9%, reflecting a weakening global demand. The shipment of petroleum products fell 19.1% YoY on lower volume and average unit value but crude petroleum saw a 2.5% rise on a 16.9% increase in volume shipped despite the 12.3% decline in average unit value. Demand for LNG expanded by 7.8% annually on a 7.8% rise in volume. Exports of palm oil and its products on the other hand fell by 2.4% on weaker volume as well as average unit value.

- On delivery destination, exports to ASEAN gained a moderate 0.9% YoY after increasing by 3.3% previously. The 2.0% increase in delivery to Singapore was the main factor keeping overall exports in the positive. Exports to China and Japan both suffered a decline, falling by 17.9% and 4.7% respectively. For China, the fall was largely due to lower demand for E&E goods and commodities (palm oil, natural rubber and crude petroleum) whilst exports to Japan fell on lesser shipment of E&E goods, LNG and petroleum products. For the first time since July 2013, exports to the EU saw a decline, of 3.8% in October. Apart from a high base, there was lesser exports of petroleum products, though exports of palm oil (to fulfil the gap left by rapeseed oil during the winter months) and E&E remains positive at 26.3% and 1.5% respectively. Unlike most of Malaysia’s trading partners reducing demand, exports to the USA remains strong at 7.5% YoY, led by demand for E&E goods as well as optical and scientific equipment.

- There was a strong demand on the domestic end, leading to a 5.9% YoY (9.2% MoM) rise in consumption goods. Though capital goods saw a 4.9% YoY fall, the monthly comparison saw a 12.3% rise. Demand for intermediate goods surged 20.8% YoY on 17.4% MoM increase, hinting at a possibility of stronger exports moving forward, likely in anticipation of a boost of year-end consumer spending.

Outlook

- Despite the rather pessimistic outlook in the 4Q14 due to weakening global growth and a high base effect to boot, at least the economic situation in the USA grows ever more optimistic. But one country alone, even as powerful as the USA, will not be enough to boost the global economy. With major players such as China, Japan and the Eurozone facing uncertain economic prospects in the next six to 12 months, it will be difficult for Malaysia (which still remains a exporting nation despite growing domestic strength) to hit a 6.0% GDP growth this year. Hence why we have had to revise down our GDP target to 5.8%. However, though the recent plunge in crude oil prices would be negative to oil exporting nations and oil & gas companies, it also means cheaper petrol prices for consumers and businesses. This would invariably mean more disposable income for consumers and large savings for corporates which hopefully could boost aggregate demand and mitigate the downside impact of weaker global growth in the coming year.

Source: Kenanga