Trade data contracts unexpectedly, hints slowing GDP

• Malaysia’s exports and imports growth contracted 5.3% and 9.4% respectively in Feb

• Data in line with slowdown in global trade activities, suggesting a further slowdown

• 1Q19 GDP growth may have likely slowed further to around 4.5% from 4.7% in 4Q18

Highlights

In February, Malaysia’s exports and imports contracted by 5.3% y-o-y (Jan: +3.1%) and 9.4% y-oy (Jan: +1.0%) respectively. As a result, the country’s trade surplus expanded to RM11.1bn (Jan18: RM9.0bn), an increase of RM2.1bn compared to the same month in the preceding year.

During the month, the contraction in exports growth was led by contraction in petroleum products (-30.9%); crude petroleum (-21.8%); O&G (-18.0%) and crude palm oil (-11.4%), which offset the exports expansion of E&E products (+4.9%) and LNG (+8.6%).

On the other hand, the contraction in imports was attributed to a decline in all segments of goods – capital goods (-14.9%), consumption goods (-11.6%) and intermediate goods (-2.8%).

Our comments

In February, exports growth came in way below Bloomberg consensus estimate of +2.3% y-o-y. This marks the first fall of exports and imports growth since February 2018.

On a seasonally adjusted (SA) m-o-m basis, exports growth contracted by 15.3% (Jan: +7.9% SA m-o-m) to RM73.8bn. The 3-months moving average growth for exports has been moderating as well (Jan: +3.3% y-o-y vs Feb: +1.3% y-o-y), indicating a potential moderating trend in Malaysia’s exports performance.

The contraction in exports can be mainly attributed to lower exports volume growth (Feb: -6.6% y-o-y vs Jan: +1.7% y-o-y), although exports value continues to grow (Feb: +1.4% y-o-y vs Jan: +1.3% y-o-y) as the ringgit strengthened from RM4.12 per USD in January to RM4.08 per USD in February.

Furthermore, Malaysia’s trade with its major trading partners such as the US, China and Japan contracted by 8.9% y-o-y, 1.6% y-o-y and 2.9% y-o-y respectively, which was in-line with decreasing global trade activities amidst slowdown in global economic growth.

Nevertheless, exports of E&E manufactured goods (+4.9% y-o-y) remain resilient, partially softening the contraction in overall exports growth and is expected to continue supporting exports growth in the short run.

Meanwhile, headwinds arising from the ongoing US-China trade uncertainties have yet to subside. Since the previous rounds of negotiations between US and China were concluded without an outcome, a further extension of negotiations will likely last till mid-2019 until both sides comes to a more concrete resolution.

We remain cautiously optimistic on Malaysia’s exports growth in the near term, and hence we maintain 2019 full-year exports growth to expand between 3.0% to 4.0% y-o-y (2018: +6.8% y-o-y).

Growth-wise, we expect 1Q19 GDP growth to expand around 4.5% y-o-y, in view of a slowdown of exports performance. For full year 2019, we maintain our GDP growth forecast of +4.5% y-o-y (2018: +4.7% y-o-y).

Source: Alliance Research - 4 Apr 2019