Exports growth remains resilient in January

• January exports and imports growth came in at 3.1% and 1.0% respectively

• We expect E&E manufactured goods and petroleum products to remain the main driver of exports growth

• We forecast 2019 full-year exports growth at around 3.0%-4.0% and GDP growth at 4.5% in 2019

Highlights

In January, Malaysia’s exports expanded by 3.1% y-o-y (December 2018: +5.1%), while imports growth remained unchanged at 1.0% y-o-y compared to December 2018. As a result, the country’s trade surplus grew by RM0.8bn to RM11.5bn (December 2018: RM10.7bn), an increase of RM1.9bn compared to the same month in the preceding year.

During the month, the y-o-y exports growth was led by expansion in LNG (+37.5%) and E&E products (+8.2%). However, growth was offset by the exports contraction of crude petroleum (- 1.1%), refined petroleum products (-29.9%) and crude palm oil (-16.6%).

On the other hand, the y-o-y imports growth was attributed to an increase in consumption goods (+3.3%) while capital goods and intermediate goods contracted by 3.3% and 0.8% y-o-y respectively.

Our comments

In January, exports growth exceeded Bloomberg consensus estimate of -0.6% y-o-y.

Although exports growth moderated on a y-o-y basis, it expanded by 7.9% on a seasonally adjusted (SA) m-o-m basis (December 2018: -0.4% SA m-o-m) to RM87.2bn, which indicated a high base effect when compared to the same month in the preceding year (January 2018: +17.8% y-o-y).

The expansion in exports can be mainly attributed to higher exports volume growth of 3.5% m-om (December 2018: -1.2% m-o-m), which has overshadowed the contraction in exports value of 1.3% m-o-m (December 2018: -0.6% m-o-m) as the ringgit strengthened from RM4.17 per USD in December 2018 to RM4.12 per USD in January 2019.

Furthermore, Malaysia’s trade with its major trading partners such as the US, Singapore and Japan expanded by 0.9% m-o-m, 2.3% m-o-m and 9.5% m-o-m respectively, indicating that external demand for Malaysian exported goods remained resilient, with the exception of a 4.2% m-o-m contraction in exports to China.

All-in-all, we expect E&E manufactured goods, mainly electrical machinery, apparatus and appliances (2018: +17.5% y-o-y, 27.8% of total exports), and petroleum and petroleum-related products (2018: +12.1% y-o-y, 11.1% of total exports) to remain the main driver of exports growth in 2019.

Nevertheless, headwinds arising from the ongoing US-China trade war have yet to subside even with the temporary truce that was agreed by both parties since the end of last year, though recent trade negotiations between the US and China will likely be concluded by end-March 2019.

We remain cautiously optimistic on Malaysia’s exports growth in the near term, and hence we expect 2019 full-year exports growth to come in between 3.0% to 4.0% y-o-y. We also reiterate our 2019 GDP growth forecast of +4.5% y-o-y (2018: +4.7%).

Source: Alliance Research - 4 Mar 2019