OVERVIEW

● February’s exports fell sharply to a 20-month low of -11.3% YoY (Jan: -4.3%), far lower than consensus estimate of -4.5% (Reuters). On a MoM basis, it contracted by 10.0% (Jan: -2.8%) to USD12.5b. On a similar downtrend, imports fell even sharper by -14.0% YoY, beating consensus estimate of 0.3%. As a result, its trade balance turned a surplus of USD0.33b from a deficit of USD1.06b in the preceding month. This was its first surplus since September last year.

● The decline in exports is mainly attributable to the sharp fall in exports of non-oil and gas which contracted by 10.2% YoY (Jan: -4.1%). On MoM, it fell by 9.8% to USD11.4b after a marginal increase of 0.8% in the preceding month. Manufacturing exports fell sharply by 8.3% YoY (Jan: 4.7%) which is a 20-month low. Meanwhile, export of mining and others recorded a sharp declined of 20.8% YoY (Jan: 23.3%) and export of agriculture fell by 0.9% YoY (Jan: -7.7%).

● Similarly, exports of oil and gas-based product posted a sharp decline of 21.7% YoY (Jan: -6.7%). On MoM, it fell by 11.8% (Jan: -29.3) to USD1.1b. This is attributable to a sharp fall in exports of manufacturing and mining at - 34.5% and -20.7% YoY respectively. Meanwhile, the export of gas procurement recorded a positive turnaround of 3.4% YoY.

● The sharp decline in imports was largely broad based. Import of consumer goods fell sharply by 26.9% YoY (Jan: - 10.5%). Of note, the government has increased import tax of up to 10% on 1147 consumer goods since last September while the country is struggling to reduce its trade deficits. Meanwhile, imports of raw materials and capital goods declined by 15.0% and 0.8% YoY respectively (Jan: -0.4% and -5.0% respectively). We expect imports to continue its downtrend in the near term on the impact of higher import tax as it would continue to hamper and disrupt the supply chain for exports.

● Overall, we expect exports’ growth in 2019 to moderate to 4.5-5.5% (2018: 6.7%) on the back of an economic slowdown in key export markets namely China and the US, and the expectation that the price of commodities to remain weak especially crude palm oil and coal, two of its key exports.

Source: Kenanga Research - 18 Mar 2019