• Exports declined for the tenth month in December (-10.0% YoY; Nov: -6.1%) and lower than expected (KIBB: - 5.8%; consensus: -5.0%). Overall, 2023 export fell by 8.0%, worse than house forecast of -5.7% and its lowest since 2009
  
  − MoM (-2.7%; Nov: -3.5%): fell for the second straight month albeit at a slower pace.
  
  − 4Q23 (-6.9%; 3Q23: -15.2%): growth contraction eased during the quarter after two consecutive quarters of doubledigit growth contraction.

• Weak shipments to major trading partners and subdued exports of key sectors and products
  
  − By destination: exports to major destinations remained weak across the board, led by the EU (-25.5%; Nov: - 6.9%), followed by Singapore (-24.8%; Nov: -17.0%), the US (-5.1%; Nov: -8.7%), Japan (-4.7%; Nov: -18.3%) and China (-1.5%; Nov: -8.4%).
  
  − By sector: dragged by weak export of agriculture (-25.9%; Nov: -6.0%) and manufacturing (-10.3%; Nov: -6.7%) sectors. Nevertheless, it was partially mitigated by a rebound in the mining (9.1%; Nov: -2.3%) sector and expansion in the other (29.3%; Nov: 27.1%) sector category.
  
  − By product: weighed down by persistent weakness in manufacturing related products such as electrical and electronics (E&E) (-12.1%; Nov: -13.7%) and petroleum products (-22.2%; Nov: 8.2%). This was further weighed by continued weakness in agriculture-related, especially palm oil & palm oil-based products (-31.3%; Nov: -10.8%).

• Imports expanded (2.9%; Nov: 1.5%), charting positive growth for the second consecutive month, but lower than expectations (KIBB: 4.4%; consensus: 4.2%). Overall imports fell by 6.4% in 2023 (2022: 31.0%)
  
  − Growth in December was contributed by solid retained imports (11.0%; Nov: 2.0%) but partially capped by weak re-exports (-20.3%; Nov: 0.0%).
  
  − By category, growth was also attributable to a rebound in intermediate goods (10.1%; Nov: -5.6%), while capital goods moderated (24.6%; Nov: 51.3%). However, the momentum was partially capped by weak consumption goods (-0.7%; Nov: 2.4%).
  
  − MoM (-2.6%; Nov: -3.3%): contracted for the second straight month albeit at a slower pace.
  
  − 4Q23 (1.3%; 3Q23: -16.3%): imports rebounded during the final quarter to RM329.3b (3Q23: RM297.2b).

• Trade surplus narrowed to a 44-month low at RM11.8b (Nov: RM12.2b), far below expectations (KIBB: RM15.8; consensus: RM17.6b) as exports contracted sharply on YoY basis, while imports expanded
  
  − Overall, the trade surplus narrowed to RM214.1b in 2023 (2022: RM256.2b), its lowest since 2020.
  
  − Meanwhile, total trade remained weak (-4.3%; Nov: -2.7%), registering a tenth straight month of YoY decline.

• We project 2024 exports to rebound by 9.4% in 2024 (2023: -8.0%) despite heightened downside risks
  
  − The weaker export performance in 2023 was mainly attributed to the subdued global demand of E&E and commodity-related goods. This was also because of the high base recorded in 2022 and the escalation of geopolitical tensions alongside the impact of a higher interest rate environment led by the advanced economies while China grapples with its post-pandemic recovery.While we project a growth rebound in 2024, we continue to remain cautious in our outlook as the rising risk of geopolitical tensions, particularly in the Middle East amid the Red Sea crisis, could further disrupt the global supply chain and subsequently weigh on global trade activities. A slower-than-expected recovery in China also will continue to impede the growth in the export-oriented sector.
  
  − Despite lower-than-expected GDP growth estimates released by the Department of Statistics (DOSM) at 3.4% (3Q23: 3.3%), slightly missing our target of 3.7%, the full-year growth is still projected to settle within our forecast of 3.5% - 4.0% (DOSM: 3.7%). As we expect the recovery in the external sector to pick up pace, especially in the 2H24, alongside steady and resilient domestic demand, we project GDP growth to expand further to 4.9% in 2024.

Source: Kenanga Research - 22 Jan 2024