• Exports and imports grew 7.6% and 14.9% respectively in June

• Trade surplus continues to shrink in June on stronger imports

• Estimate 2Q18 GDP growth to expand by 5.6% y-o-y; revise 2018 exports growth to 5.5% - 6.0% (previously +4.0%)

Highlights

In June, Malaysia’s exports grew 7.6% y-o-y (May: +3.4%), whereas imports rose by 14.9% y-oy (May: +0.1%). As a result, trade surplus contracted to RM6.04bn (May: RM8.1bn).

During the month, exports growth was mainly supported by E&E products (+6.9%), refined petroleum products (+40.6%) and crude petroleum (+25.3%). On the contrary, exports of palm oil and palm oil-based products declined 20.4% and LNG reduced by 31.2%.

Meanwhile, June’s imports was driven by intermediate goods (+3.1%), capital goods (+14.1%) and consumption goods (+4.9%). In 1H18, exports and imports y-o-y growth came in at +7.2% and +3.9% respectively.

Our comments

In June, actual exports growth came in lower than Bloomberg’s consensus estimates of 10.3%.

The 3-months moving average of exports rebounded by 8.2% y-o-y in June (May: +6.3%), showing signs that Malaysia’s exports remained resilient despite continuing jitters from US-China trade war since April.

On a m-o-m basis, exports fell by 4.2% (May: -3.3%), mainly due to lower trading activities amidst Hari Raya festive holidays in mid-June. During the month, LNG exports fell by 31.2%, palm oil and palm oil-based products fell 14.6%.

In contrast, other major exports which had seen growth were E&E exports (+6.9%), petroleum products (+33.9%), chemicals and chemical products (+31.6%).

Meanwhile, Nikkei Malaysia Manufacturing PMI continues to improved, recording a five-month high index of 49.7 in July (June: 49.5). Domestic manufacturing sector growth was driven by increasing output and improved demand conditions during the month.

According to IMF, the recent announced and anticipated US tariff of USD200bn on China imports (covering almost every China imports to US) and retaliatory measures by trading partners have increased the likelihood of escalating and sustained trade tensions.

Thus, Malaysia’s trade with US contracted 6.8% y-o-y in June, with lower exports of E&E products, as well as palm oil and palm-oil based products. On the other hand, the lower exports to US were balanced off by a growth in Malaysia’s exports to China and ASEAN, expanding 16.9% and 7.4% respectively within the same month.

Nevertheless, we expect incoming 2Q18 GDP growth to register a strong growth of 5.6% (1Q18: +5.4%), supported by stronger private consumption due to a one-month tax holiday in June and resilient exports performance (2Q18: +8.4% vs 1Q18: +6.0%).

We revised our exports growth projection to 5.0% - 6.0% y-o-y in 2018 (previously +4.0%), and maintain our 2018 GDP forecast at 5.6% y-o-y.

Source: Alliance Research - 3 Aug 2018