● Exports expanded to a three-month high in February (9.8 YoY; Jan: 1.4%), beating consensus of 4.7% but below the house forecast of 14.3%

- MoM (-0.3%; Jan: -14.5%): growth contracted marginally, reflecting an improved demand following a shorter working period in the previous month due to the Lunar New Year holidays. Nonetheless, growth came in below our forecast as we may have overestimated the effect of China’s economic reopening.

● Growth expansion was due to improved demand among major and regional trading partners, and higher shipment in the key export sector

- By destination: higher demand from the US (18.7%; Jan: -0.7%), and among regional economies led by PH (32.5%; Jan: 1.6%), followed by SG (27.7%; Jan: 18.9%) and KR (26.5%; Jan: 4.1%). Nevertheless, export to CN (-6.0%; Jan: -11.9%) remained in contraction albeit easing.

- By sector: attributable to a higher export from manufacturing (9.5%; Jan: -0.3%) sector, which posted a three-month high and was supported by a double-digit expansion of mining (34.8%; Jan: 50.1%) sector. This was further lifted by a smaller contraction in the agriculture (-9.0%; Jan: -19.8%) sector.

● Imports expanded sharply to 12.4% (Jan: 2.2%), a three-month high, beating consensus of 6.4%, but lower than the house projection of 20.4%. Growth was attributable to a lower base effect and supported by higher re-exports (37.6%; Jan: 33.5%) and a rebound in retained imports (5.4%; Jan: -6.4%)

- By category, growth was mainly contributed by intermediate goods (3.3%; Jan: -4.2%) and consumption goods (1.2%; Jan: -4.8%) but was capped by weak capital goods (-0.3%; Jan: -1.9%). On a MoM basis, imports fell (- 1.9%; Jan: -8.8%) for the fourth straight month but at a slower pace.

● Trade surplus expanded to RM19.6b (Jan: RM18.1b), higher than expectations (KIBB: RM17.7b; consensus: RM18.5b) as MoM fall in imports (-1.9%) outpaced exports (-0.3%)

- Meanwhile, total trade rose sharply to 11.0% (Jan: 1.8%), a three-month high reflecting increased trade activity during the month.

● 2023 export forecast maintained at 5.8% (2022: 25.0%) amid heightened external risks

- Though February’s export performance demonstrated a recovery, it still remains weak given the second month of decline on a MoM basis despite the optimism arising from China’s reopening. Against this backdrop, we still expect export growth to remain moderate going forward, with a possibility of growth contraction given the normalisation of economic activities, relatively lower commodity prices and the diminishing effect of a lower base.

- Likewise, we maintained our 2023 GDP forecast at 4.7% (2022: 8.7%), anticipating that economic growth will be supported by resilient domestic demand attributable to a lower unemployment rate, increased tourist arrival, and the gradual effect of China’s economic reopening. Nonetheless, we are still pencilling a cautious outlook given the heightened external uncertainties amid rising geopolitical tensions and recent global banking fears.

Source: Kenanga Research - 21 Mar 2023