● Export growth moderated sharply to a 27-month low in January (1.6% YoY; Dec 22: 5.9%), lower than expectations (KIBB: 10.4%; consensus: 9.0%)

- MoM (-14.4%; Dec 22: 1.6%): fell sharply, lowest since April 2020 (-19.1%), reflecting a slower growth momentum amid subdued demand and the impact of the shorter working period due to the Lunar New Year holidays.

● Growth slowed due to a subdued demand among major trading partners, and weak shipment in the key export sector

- By destination: subdued demand led by China (- 11.9%; Dec 22: -12.1%), followed by the US (-0.6%; Dec 22: 7.8%), and the EU (1.4%; Dec 22: 20.1%).

- By sector: attributable to a slowdown in agriculture (-19.8%; Dec 22: -0.4%) and manufacturing (-0.1%; Dec 22: 4.6%), but partially offset by an expansion in mining (50.1%; Dec 22: 30.7%).

● Imports moderated sharply to 2.3% (Dec 22: 11.5%), a 23-month low and lower than expectations (KIBB: 10.2%; consensus: 9.6%) as retained imports (-6.2%; Dec 22: 7.3%) plunged to the lowest since November 2020

- By category, the slower import growth was mainly weighed by a broad-based slowdown led by consumption goods (-4.7%; Dec: 16.2%), followed by intermediate goods (-3.9%; Dec 22: 6.4%) and capital goods (-1.7%; Dec 22: - 2.9%). On a MoM basis, imports plunged (-8.6%; Dec 22: -4.0%) for the third straight month.

● Trade surplus narrowed to RM18.2b in January (Dec 22: RM28.1b), lower than expectations (KIBB: RM20.7b; consensus: RM21.0b) as MoM fall in exports (-14.4%), far outpaced imports (-8.6%).

- Meanwhile, total trade moderated to 1.9% (Dec 22: 8.3%), a 26-month low or the lowest growth since November 2020, reflecting a slowdown in trade activity at the start of 2023.

● 2023 export forecast retained at 5.8% (2022: 25.0%)

- Although January's export may reflect seasonal factors due to the festive season period and a shorter working day, we still expect growth to moderate in the coming months amid the normalisation of economic activities and the diminishing effect of the lower base recorded last year.

- Nevertheless, following better-than-expected GDP growth in 4Q22 and overall 2022, we have revised the GDP forecast for 2023 to 4.7% (2022: 8.7%) from 4.3% as growth is expected to be supported by resilient domestic demand and considering the positive effect of China's economic reopening as well as the increase in tourist arrival and domestic spending. However, we remain cautious about the growth outlook as a slack in the external sector could weigh on domestic growth going forward.

Source: Kenanga Research - 21 Feb 2023