Data Highlight

• Malaysia's total trade continued to decline, but a softer pace of 2.4% YoY to RM239.52bn in October 2023. This contraction was lower than the 12.6% YoY decline observed in September. On a monthly basis, it grew by 6.8%, compared to a 5.3% increase in the previous month, indicating resilient demand and it is a good start for final quarter of this year. 

• Meanwhile, Malaysia's trade surplus for the month narrowed to RM12.87bn. This figure represents a decrease of 47.2% MoM from the previous month's surplus of RM24.37bn. On a YoY basis, trade surplus also decreased by 30.3% from RM18.46bn in October 2022.

• Breakdown showed that the contraction of total exports reduced to 4.4% YoY during the month, better than consensus expectations of -5.0% YoY. The absolute value of Malaysia's exports amounted to RM126.19bn, reflecting an increase of 1.5% (or addition of RM1.88bn) from the previous month's RM124.31bn (Sept 2023: 8.1% MoM). Meanwhile, Malaysia's domestic exports witnessed a decline of 4.7% YoY to RM96.43bn (-0.3% MoM), while re-exports rose by 7.8% YoY to RM27.76 bn (+23.6% MoM).
  
  - Among the top ten destination countries, most recorded a contraction in demand with the exception of the US, Hong Kong, South Korea and Vietnam.
  
  - Exports to China, valued at RM17.13bn and contributed 13.6% to Malaysia's total exports (making it the second-largest market), declined at lesser pace by 7.0% YoY (Sept 2023: 17.3% YoY). This was due to the decline exports of liquefied natural gas (LNG) (-40.5% YoY) and palm oil & palm oil-based products (-38.5% YoY).
  
  - Similarly, exports to Singapore, accounted for 14.2% of total exports and valued at RM17.87bn, registered a decrease of 8.2% YoY. This was due to reduced exports of E&E products by 13.5% YoY from RM9.0bn to RM7.8bn.
  
  - By sector, both manufacturing and mining contracted by 3.5% and 21.9% YoY, respectively. Nonetheless, the agriculture sector rebounded to positive territory during the month (Oct 2023: 3.3%; Sept 2023: -11.8% YoY).

• A similar downward trend was observed in Malaysia's total imports, with a marginal decline of 0.2% YoY to RM113.33bn, much better than September’s -11.1% YoY(consensus estimates: -9.3% YoY). On a monthly basis, total imports rose significantly by 13.4% from RM99.94bn in August 2023.
  
  - China remained as Malaysia's top source of imports, recording total imports of RM25.18bn, which accounted for a 22.2% share of Malaysia's imports. Moreover, imports from China increased by 8.9% YoY (Sept 2023: -9.0% YoY).
  
  - Singapore followed as the second-largest source of imports with RM3.83bn (12.2% share) and increased by 28.6% YoY. Looking at specific sectors, imports of manufactured and agriculture goods rose by 1.7%, and 2.8% YoY to RM95.16bn and RM5.81bn, respectively. Meanwhile, imports of mining segment declined by 16.5%bYoY to RM10.44bn 

• In the first ten months of 2023 (10M23), Malaysia's total exports and imports decreased by 8.0% YoY to RM1.19tn and RM995.55bn, respectively (9M23: -8.4% YoY). Consequently, the trade balance for the 10M23 stood at RM190.04bnbn, indicating a YoY decline of 7.9%. The total trade during this period amounted to RM2.18tn, representing a decrease of 8.0% YoY. 

• This improvement in October aligns with our anticipation of an enhancement in exports during the final quarter of this year. However, the recent PMI data for October indicates a prevailing pessimistic sentiment among our major trading partners, including China, the US, and the EU. Notably:
  
  - US manufacturing contracted sharply to 46.7 in October, reversing the prior months' signs of improvement, as both new orders and employment witnessed a decline.
  
  - China's factory activity unexpectedly contracted to 49.5 in October, renewing concerns about the state of the country's expansive manufacturing sector and its delicate economic recovery at the beginning of the fourth quarter.
  
  - Similarly, Eurozone manufacturing activity experienced a broad-based downturn (43.1) last month, with new orders contracting at one of the steepest rates since data collection began in 1997.
  
  - In contrast, Singapore's Manufacturing PMI in October edged higher to 50.2, following September's reading of 50.1. 

• While the trade performance for this year is expected to be in the red, with exports projected to decline by 7.6% and imports by 8.6%, we anticipate a gradual recovery in the external trade next year. According to a recent statement by Bank Negara, exports are expected to steadily improve, supported by a resurgence in the global tech cycle and increased tourism activity. The WSTS Global Semiconductor Sales forecast for the next year is also promising, with a significant rebound of 11.8%, contrasting with the expected -10.3% decline for the current year. This positive trajectory underscores the importance of technological advancements and the role they play in driving international trade. 

• However, there are potential factors that could dampen the trade outlook. A significant slowdown in advanced economies and the escalation of geopolitical and trade tensions pose inherent risks to the stability of global trade flow. These uncertainties emphasize the necessity for implementing justifications in trade policies.

Source: TA Research - 21 Nov 2023