● Exports unexpectedly rebounded in June (8.8% YoY; KIBB estimate: -5.9%; consensus: -8.0%; May: -25.5%)to a 4-month high

− MoM (32.3%; May: -3.3%): rebounded sharply and the fastest growth since April 1997, reflecting improvement in economic activity among the trading partners on the back of gradual economic reopening.

− 2Q20 (-14.3%; 1Q20: 1.1%): fell sharply in line with house projection of deeper contraction in external demand.

− Detailed trade statistics will be released in the first week of August.

● Positive exports in June were led by strong demand from China, the US, and Hong Kong

− CH (46.8%; May: 4.5%): rose sharply to a 37-month high on strong domestic demand, signalling of positive economic recovery.

− US (27.6%; May: -9.3%): rebounded sharply to a 56-month high, thanks to the strong consumer demand fueled by the reopening of stores and restaurants in some states.

● Imports remained in a negative territory for a fourth straight month albeit at a smaller contraction (-5.6% YoY; KIBB: -7.1%; consensus: -8.0%; May: -30.4%)on weak retained imports (-8.1%; May: -30.4%) as both domestic and external demand faltered.

− Demand for intermediate goods fell by less (-10.8%; May: -27.8%) and partially offset by a rebound in capital and consumption goods, which increased to 2.8% and 9.0% respectively (May: -27.9% and -21.9% respectively).

● Trade surplusrose to a record high(RM20.9b; May: RM10.4b) as the strong MoM exports rebound (32.3%) outpaced imports’ positive turnaround (18.6%; May: -23.6%). Nonetheless, trade surplus narrowed to RM27.6b in 2Q20 (1Q20: RM37.0b)

● 2020 export forecast range maintained (-15.0% to -10.0%; 2019: -1.7%) on expectation of weakness in external demand

− Year-to-date, exports fell by 6.8% largely triggered by the impact of COVID-19 pandemic, which dragged demand and supply heavily in the 2Q20. Though there are signs of a recovery following the economic reopening effort, we remain cautious given the fears of a new wave of infections, and escalating geopolitical tension among major economies which could hamper demand conditions in the 2H20.

− Going forward, the impact of the Recovery Movement Control Order and the gradual ease of movement restriction among major trading partners are still at an early stage. This mainly reflect in the sharp rise of unemployment rate along with low or no income growth. This, in turn, weighs heavily on private investment and consumption, dragging down the economy. Overall, we expect 2Q20 GDP growth to fall by 7.5% (1Q20: 0.7%) and the whole year GDP growth forecast at -2.9% (2019: 4.3%).

Source: Kenanga Research - 29 Jul 2020