● Exportstumbledin May at the fastest pace since the Global Financial Crisis, underperforming expectation (-22.5% YoY;KIBB:- 15.0%; consensus: -6.4%; Apr: 2.1%).

● Byproduct,the contractionwasdue to a negativeturnaroundin shipments ofmanufacturingand agro industrialgoods, as well as a high base effect

- Manufacturing (-27.0%; Apr: 4.0%): deepest drop on record due to a relatively soft gold exports (735.1%; Apr: 1,102.7%), as well as plummeting automotive (-56.6%; Apr: -27.3%) and electronics (-14.6%; Apr: 4.6%) shipments due to continued logistical hurdles and falling demand for discretionary items.

- Agro industrial (-10.3; Apr: 5.8%): sharpest decline in five years dragged by lower exports of alcoholic beverages (-75.4%; Apr: -61.5%), as demand was hit by continued closure of entertainment venues across countries in May

● By destination, excluding China, shrinking demand was observed across the board

- The fall was steered by the US (-17.3%; Apr: 34.6%), ASEAN-5 (-27.9%; Apr: 13.0%) and Japan (-24.6%; Apr: 9.8%).

● Imports registered its deepest decline in 11 years (-34.4%; consensus: -18.0%; Apr: -17.1%)

- Broad-based decline led by imports of fuel lubricants (-70.0%; Apr: -26.8%) and raw materials & intermediates (-25.8%; Apr: -13.2%), suggesting slow resumption of factory operations.

● Tradebalance continuedits expansion, registering atathree-monthhigh(USD2.7b;Apr:USD2.5b) as imports declined (-17.7%) more than exports (-14.0%) on a MoM basis.

● 2020 export growth outlookis expected to hinge towards the lower-half of our forecast range (-10.0 to -5.0%; 2019: -2.7%)

- External demand to remain suppressed, albeit improving gradually in the next few months, as nations across the globe are at various stages of economic reopening, with business and consumer sentiments requiring longer time before returning to pre-COVID levels, influenced by the risk of a second wave of infections and the US-China trade war developments.

- Nonetheless, the BoT is expected to retain the policy rate at 0.50% for now, as domestic activities stand to chart further recovery following a full economic reopening and partial relaxation of entry of foreigners on July 1st.

Source: Kenanga Research - 25 Jun 2020