● Exports fell sharply in June (-14.1% YoY; May -0.9%), a tad below consensus (-14.0%) but above house forecast (-21.4%)

- MoM (3.7%; May: 13.6%): moderated sharply but remained at a second consecutive month of expansion, reflecting that the export momentum is slowing.

- 2Q23 (-11.1%; 1Q23: 3.0%): growth plunged to a 12-quarter low or the lowest since 2Q20.

● Broad-based slowdown among key sectors and trading partners

- By destination: subdued exports among key trading partners led by the EU (-21.8%; May: -6.2%), followed by JP (-20.9%; May: 2.1%), the US (- 19.0%; May: 15.3%) and CN (-8.0%; May: 1.4%).

- By sector: weighed mainly by agriculture (-42.1%; May: -31.0%), followed by mining (-34.9%; May: 5.9%) and manufacturing (-9.5%; May: 1.7%) sectors.

● Imports fell sharply (-18.9%; May: -3.7%), below expectations (KIBB: -18.7%; consensus: -16.5%).

- Growth was the lowest since May 2020, and it was the fourth straight month of contraction partly due to weak reexports (-10.3%; May: 6.4%) and retained imports (-22.2%; May: -6.6%). On a MoM basis, growth declined (-5.4%; May: 12.1%) following a sharp rebound in the previous month.

- By category, it was a broad-based slowdown, led by weak intermediate (-25.7%; May: -13.0%), followed by capital (-12.1%; May: 13.0%) and consumption (-11.8%; May: 4.5%) goods.

- 2Q23 (-11.5%; 1Q23: 3.4%): import growth plunged to the lowest since 2Q20.

● Trade surplus jumped to RM25.8b (May: RM15.7b), beating expectations (KIBB: RM13.7b; consensus: RM16.7b) as exports (3.7%) increased, while imports (-5.4%) declined on a MoM basis

- 2Q23 (RM54.1b; 1Q23: RM64.4b): trade surplus dropped to the lowest since 2Q20.

- Nonetheless, total trade remained weak, declining (-16.3%; May: -2.2%) for the fourth straight month.

● 2023 exports forecast retain at -4.2% (2022: 24.9%) amid a cautiously optimistic outlook and a sustained high base effect till September

- Year-to-date exports (as of June) currently stood at -4.5% (Jan-Jun 2022: 25.7%), mainly due to weaker global trade activity as reflected in the subdued commodity prices and partly due to the waning lower base effect. The impact of the global economic slowdown and the diminishing lower base effect is expected to continue until September 2023. Hence, we maintain a cautious outlook and maintain our exports forecast at -4.2% for now.

- Despite weak exports in 2Q23, we still expect GDP growth to expand by 6.0% (1Q23: 5.6%) during the quarter, mainly due to resilient domestic demand, which is expected to take up the slack in the commodity-related and manufacturing export-oriented sectors. That said, we maintain the overall 2023 GDP growth forecast at 4.7% (2022: 8.7%).

Source: Kenanga Research - 21 Jul 2023