Exports rebounded in the final month of 2019 after charting a four straight month of contraction,beating market expectation but below house forecast (2.7% YoY; consensus: -3.1%; KIBB: 11.0%; Nov: -5.5%)

• MoM: rebounded to 6.8% after it fell sharply in the preceding month (Nov: -10.7%).
• QoQ: a sharper contraction of 3.3% YoY (3Q19: -1.9%).
• 2019: registered the lowest growth in 10 years (-1.7%; 2018: 7.3%).

Product-wise,higher shipments of palm oil & palm-oil based products as well as asmaller contraction inE&Eexports outweighed a sharp drop in crude petroleum

• Palm oil & palm oil-based products (20.9%; Nov: -2.6%): rose to a 31-month high and contributed 1.2 percentage points to overall export growth.
• E&E (-5.4%; Nov: -11.6%): extended its slowdown for the fifth straight month, mainly due to a decline in shipments of electronic integrated circuits (-5.5%; Nov: -17.6%) on continued weakness in the global semiconductor sales.
• Crude petroleum (-24.3%; Nov: -23.4%): fell for the six straight months, despite of higher average Brent crude oil price (USD67.3/barrel; Nov: USD63.2/barrel) following OPEC's decision to extend oil output cut until March 2020.

By destination, higher demand from China and the US partly lifted December’s growth

• CN (4.1%; Oct: -11.0%): rose to a 14-month high, potentially boosted by China's stimulus measures.
• US (6.5%; Oct: 2.7%): rose to a 31-month high due to easing trade tensions between the US and China.
• EA-7 (-0.2%; Nov: -11.9%): smaller contraction thanks to a recovery in export to South Korea, Taiwan and Indonesia. Meanwhile, exports to HK remained weak on the impact of six-month long pro-democracy rally.

Imports up 0.9% (consensus: 0.0%; KIBB: 7.3%; Nov: -3.6%) driven by higher retained imports (1.2%; Nov: 0.2%).

• Attributable to higher imports of intermediate goods (6.0%; Nov: 1.8%). Meanwhile, imports of consumption goods (-3.2%; Nov: 1.9%), and capital goods (-10.9%; Nov: -4.4%) fell and contributed negatively to imports’ growth.
• Overall, imports fell by 3.5% in 2019 (2018: 5.2%), its lowest since 2009.

Trade surplusroseto RM12.6b (consensus: RM8.0b; KIBB: RM14.9b; Nov: RM6.6b) as exports far outpaced the expansion in imports. Overall, the trade surplus expanded to RM137.4b in 2019 (2018: RM123.8b), which could partly boost current account surplus and reinforce external resilience.

December’s trade performance is in line with our projection of slower export momentum in the 4Q19 (-3.3%; 3Q19: -1.9%). This supportsour view that GDP growth could slow to 4.0% in the final quarter of 2019 (3Q19: 4.4%), bringing full GDP growth to 4.5% (2018: 4.7%).

House maintains 2020 exportforecaston the expectation thatexternal demandto gradually pick up,possiblycharting a singledigit growth between 1.0-4.0% for the year

• The short term outlook remains weak amid heightened external risks, in particular, the geopolitical tension, growth slowdown in a key trading partner, headwinds in the US-China trade negotiation despite both sides have reached the phase one agreement, as well as the impact of the new coronavirus outbreak.
• Nevertheless, growth may be supported by a potential upturn in the tech sector and lagged impact from the recent monetary easing and expansionary fiscal measures adopted in many economies since last year. Hence, we maintain our forecast of Malaysia’s GDP growth of 4.3% in 2020 (2019F: 4.5%).

Source: Kenanga Research - 5 Feb 2020