OVERVIEW

● Exports growth fell by 0.3% YoY in August (July: +9.4%), the lowest for the year, below consensus and house forecast of 5.7% and 9.1% respectively. On MoM basis, it fell sharply by 5.0% (July: +9.6%). The month’s slower exports growth largely due to high base effect (it surged by 21.2% in the same a year ago) as well as the impact of escalating trade friction between the US and China along with fears of contagion risk in the emerging market triggered by the Turkish lira crisis.

● Electrical & electronics (E&E) and crude oil receipts remain major contributors to the month’s exports growth but on a slowing trend. E&E exports growth moderate to 3.2% YoY in August (July: +23.6%). Similarly, exports of crude petroleum increased by 70.8% YoY (July: 90.1%). Brent crude price averaged around USD72.5/bbl in August. We expect exports of crude petroleum to sustain its uptrend in September as average Brent price continue to increase to USD79.9/bbl.

● Exports of commodities continue its downtrend. It fell 6.3% YoY (July: -4.9%) as shipments of palm oil, includes crude and processed, and liquefied natural gas (LNG) fell by 22.9% and 20.4% YoY respectively.

● Exports to the top three destinations slowed. Exports to Singapore and US in August declined by 2.2% and 2.0% YoY respectively (July: -2.0% and -2.0% respectively). Meanwhile, exports to China slowed to 4.5% YoY in August after a surged in July by 37.5%. So far, the US has imposed tariffs on USD250.0b worth of Chinese products imported to the nation since trade war erupted in July, about half of the USD505.0b that the US imports from China in 2017.

● Meanwhile, imports rose to 11.2% YoY (July: +10.3%), exceeding consensus (10.1%) but was below house estimate of 13.5%. The strong YoY growth in imports was due to the surge in imports of capital, intermediate and consumption goods at 29.4%, 4.2% and 14.2% YoY respectively. We expect that growth of imports to slow after Sales & Service Tax (SST) takes effect in September. As growth of exports far outpaces imports for three consecutive months, the trade surplus narrowed sharply to RM1.6b from July’s RM8.3b, the lowest in 45-months.

● On year-to-date, exports growth has slowed to 6.3% YoY compared to 22.3% in the same period of 2017, as global demand slows coupled with the on-going trade war. Hence, we maintain our projection that the 2H18 export growth to moderate between 3.0% to 5.0% (2H17: 17.0%) from 7.0% in the 1H18 thereby contributing to a lower 2H18 GDP growth forecasts of 4.8% versus 4.9% in the 1H18. This would result in a slower GDP growth projection of 4.8% for this year compared to 5.9% in 2017 as external factors are expected to weigh down on Malaysia’s economy.

Source: Kenanga Research - 8 Oct 2018