● Exports fell sharply in April (-17.4 YoY; Mar: -1.4%) far  below expectations (KIBB: -5.3%; consensus: -5.0%)

− MoM (-18.7%; Mar: 15.5%): steepest drop since  April 2020, following a sharp rebound in the previous  month and indicating a weak external trade  momentum at the start of 2Q23.

● Sluggish export growth due to a broad-based  slowdown among major trading partners and key  sector

− By destination: weak demand led by the EU (- 30.5%; Mar: -5.7%), followed by the US (-21.5%;  Mar: 7.8%) and CN (-19.9%; Mar: 6.7%). − By sector: subdued demand led by agriculture (- 29.2%; Mar: -10.9%), followed by mining (-28.9%;  Mar: -3.2%) and manufacturing (-15.5%; Mar: - 0.5%) sectors.

● Imports contracted (-11.1%; Mar: -1.8%) for the second straight month, the lowest since May 2020, while also far  below expectations (KIBB: -2.9%; consensus: -2.4%). On a MoM basis, growth fell sharply (-10.1%; Mar: 11.1%), the  lowest since February 2022, indicating a weak domestic demand in line with a sharp contraction in retained imports (- 15.6%; Mar: -5.6%) and a slowdown in re-exports (3.8%; Mar: 10.3%)

− By category, growth was dragged by the weak intermediate (-24.2%; Mar: -9.0%) and consumption (-1.6%; Mar:  6.4%) goods. Nonetheless, the growth slowdown was partially mitigated by a sharp expansion in capital goods  (11.8%; Mar: 3.1%).

● Trade surplus narrowed sharply to RM12.8b (Mar: RM26.7b), the lowest since May 2022 and below expectations  (KIBB: RM19.7b; consensus: RM21.2b) as MoM exports (-18.7%) contraction outpaced imports (-10.1%)

− Likewise, total trade declined sharply (-14.5%; Mar: -1.6%) to the lowest since May 2020.

● 2023 exports forecast revised down to -4.2% from 5.8% (2022: 25.0%) due to the prospect of slower global growth

− Given the weaker-than-expected trade performance in April and subdued year-to-date performance of -2.6% (Jan-Apr 2022: 21.7%), we downgrade our 2023 exports forecast as there is a high probability that exports could contract  further in the near term. This is mainly due to the high base recorded last year, coupled with relatively lower  commodity prices and the normalisation of economic activities as well as tighter financial conditions brought by the  aggressive monetary policy tightening in the advanced economies to tame inflation.

− At this juncture, we maintain our 2023 GDP growth forecast unchanged at 4.7% (2022: 8.7%) despite a slowing  external trade trend in the first month of the second quarter.This is largely due to the expectation that domestic  demand fueled by tourism recovery, steady labour market conditions and further expansion in the services sector  will mitigate the slack in the commodity-related and manufacturing export-oriented sectors. However, this will also  be contingent on the pace of economic recovery from China and backed by the progress of federal government  spending on infrastructure projects and higher implementation rate of foreign direct investments (FDI).

Source: Kenanga Research - 22 May 2023