• Export growth contracted for the seventh straight month (-13.7% YoY; Aug: -18.7%), but beating expectations (KIBB: -17.8%; consensus: -16.5%)
  
  − MoM (8.2%; Aug: -1.5%): exports rebounded sharply following two straight months of contraction.
  
  − 3Q23 (-15.2%; 2Q23: -11.1%): Overall, growth fell to the lowest since 3Q09 (-21.9%), reflecting subdued external demand during the quarter amid the impact of global economic slowdown alongside the high base effect recorded last year.

• Slowdown persisted among key sectors and major export destinations
  
  − By destination: major partners recorded growth contraction, led by JP (-25.4%; Aug: -19.4%), followed by CN (-17.3%; Aug: -20.3%), SG (-12.0%; Aug: -19.4%), and the US (-9.3%; Aug: -9.7%). However, share to total exports expanded, led by SG (14.9%; Aug: 14.6%), followed by CN (13.4%; Aug: 12.8%) and the US (11.9%; Aug: 11.7%).
  
  − By sector: sustained slowdown led by contraction in mining (-28.0%; Aug: -23.3%) sector, followed by the agriculture (-23.1%; Aug: -27.2%) and manufacturing (-11.8%; Aug: -17.7%) sectors.
  
  − By product: mainly weighed down by petroleum products (-37.9%; Aug: -38.6% YoY), followed by liquified natural gas (-37.8%; Aug: -26.0%) and palm oil & palm oil-based products (-26.5%; Aug: -31.9%) in line with lower global commodity prices. Besides, exports of E&E, our major export product, remained subdued (-5.3%; Aug: -15.3%).

• Imports fell (-11.1%; Aug: -21.2%), higher than house forecast (-9.5%) but beating consensus (-12.1%)
  
  − Weak import growth due to sustained weakness in both re-exports (-17.9%; Aug: -33.8%) and retained imports (- 8.2%; Aug: -16.3%), albeit easing. Nevertheless, imports rebounded on MoM (2.1%; Aug: -1.6%).
  
  − By category, it was a broad-based slowdown led by intermediate (-15.6%; Aug: -22.5%), followed by capital (-5.4%; Aug: 5.3%) and consumption (-0.6%; Aug: -5.5%) goods.
  
  − 3Q23 (-16.3%; 2Q23: -11.5%): weakest quarter since 3Q09.

• Trade surplus jumped to a three-month high to RM24.5b (Aug: RM17.2b), beating expectations (KIBB: RM20.5b; consensus: RM21.7b). However, trade surplus in 3Q23 remained weak, it fell by 9.1% YoY (2Q23: -9.2%)
  
  − Meanwhile, total trade remained weak (-12.6%; Aug: -19.9%), but growth contraction eased during the month. Nevertheless, total trade during the quarter rebounded slightly to 1.7% (2Q23: -15.7%).

• 2023 exports forecast retained at -5.7% (2022: 24.9%) on hopes for a recovery in the final quarter
  
  − Year to date (Jan-Sep), exports fell by 8.4%. This is attributed to lower commodity prices, weaker global trade activity, and the effect of the high base recorded last year. The slowdown is expected to extend towards the end of the year as the high base effect persists. Nevertheless, we expect growth contraction to ease as the high base effect dissipates, supported by China's ongoing recovery. Likewise, we keep our cautious outlook on the external sector, as we expect demand to be weighed by a higher interest rate environment.
  
  − Given the slowdown in external trade recorded during the quarter, we expect 3Q23 GDP growth to slow sharply to 1.7% (2Q23: 2.9%), with full-year growth projected to settle at 3.5% - 4.0% (2022: 8.7%). Nonetheless, we believe growth will continue to be supported by a resilient domestic demand.

Source: Kenanga Research - 20 Oct 2023