● Exports slipped back into contraction in August (-2.9% YoY; Jul: 3.1%) after two straight months of expansion, contrary to expectations (KIBB: 4.9%; consensus: 4.9%)

- MoM (-14.5%; Jul: 11.8%): steepest decline in four months, reflecting lingering weakness in economic activities amid the resurgence of COVID-19 cases in major export markets.

● Falling demand from the US, JP and regional peers outweighed rising demand from CN (20.9%; Jul: 13.9%)

- US (13.6%; Jul: 28.6%): growth moderated to a three-month low, as consumption recovery was hindered by persistent difficulty in containing the COVID-19 outbreak.

- JP (-13.8%; Jul: -2.8%): exports to the resourcescarce economy registered the steepest fall in three months due to continued weakness in commodity prices.

- TH (-23.0%; Jul: -9.4%): plunged considerably, on the back of weak consumer demand given a relatively slow disbursement of fiscal stimulus and amid the ongoing political unrest.

● Contraction of imports moderated slightly (-6.5% YoY; KIBB: -2.8%; consensus: -4.7%; Jul: -8.7%) underpinned by a smaller decline in retained imports (-10.0%; Jul: -16.5%)

- Improvement was observed across segments, led by purchase of intermediate goods (-5.6%; Jul: -17.3%) and followed by capital (-15.5%; Jul: -19.8%) and consumption goods (2.9%; Jul: 0.1%).

● Trade surplus narrowed to a three-month low (RM13.2b; Jul: RM25.2b) as exports declined (-14.5%) at a much faster pace than imports (-2.2%; Jul: 8.7%) on a MoM basis.

● 2020 export forecast range kept unchanged (-10.0% to -5.0%; YTD: -5.8%; 2019: -0.8%)

- The recovery in external demand is expected to be weighed by the resurgence of COVID-19 cases in major economies, which has led to reinstatement of lockdown measures and lower commodity prices. Political instability, domestically and externally, as well as brewing trade tension (US-CN, US-EU) pose further downside risks to trade activities.

- GDP-wise, we continue to expect a gradual recovery in the 2H20 (-3.7%; 1H20: -8.3%) supported by the accommodative monetary policy and additional fiscal injection via the KITA PRIHATIN package. Whole year GDP growth is forecasted to register at -5.9% (2019: 4.3%).

Source: Kenanga Research - 29 Sept 2020