Data Highlight

• Malaysia's total trade experienced a YoY increase of 5.1% in March 2024, amounting to RM244.47bn. This growth was higher than the 3.2% YoY increase seen in the previous month and improved significantly by 15.6% from February 2024's RM211.47bn. The better trade figure was mainly attributable by an increase in imported goods.

• Meanwhile, Malaysia's trade surplus for the month widened to RM12.81bn. This figure represents a better increase of 14.0% from the previous month's surplus of RM11.24bn. However, on a YoY basis, trade surplus decreased significantly by 52% from RM26.69bn in March last year.

• Breakdown showed total exports declining by 0.8% YoY during the month (consensus: -1.1% YoY). The absolute value of Malaysia's exports amounted to RM128.64bn, reflecting a marginal decrease of 0.8% (or reduction of RM1.02bn) from the March 2023’s RM129.67bn. Particularly, Malaysia's domestic exports witnessed moderate increase of 1.7% YoY to RM104.18bn (+13.8% MoM), while re-exports dropped by 10.2% YoY to RM24.46bn (+23.4% MoM). On a MoM basis, total export surged by 15.5% from February’s RM117.38bn.
  
  - Among the top ten destination countries, performance varied, with 7 countries experiencing a decline on a YoY basis.
  
  - Singapore sustained as the primary contributor to Malaysia's exports during the month. Together with China, both countries accounted for a substantial 27.7% of Malaysia's total exports, solidifying their positions as key destination countries for Malaysian exports. In addition, the percentage share of US also high at 11.7% of total exports.
  
  - Exports to Singapore fell 6.8% YoY to RM19.3bn. The decrease was attributable from lower exports of electrical & electronic (E&E) products (-15.2% YoY) and petroleum products (-6.4% YoY).
  
  - Exports to China reduced by 2.1% YoY to RM16.3bn on account of lower exports of palm oil & palm oil-based agricultural products (-48.8% YoY) and metalliferous ores & metal scrap (-38.3% YoY).
  
  - Exports to European Union (-10.3% YoY to RM9.85bn), Japan (-5.4% to RM7.83bn), Hong Kong (5.7% YoY to RM7.38bn), Indonesia (-3.3% YoY to RM4.72bn) and Thailand (-3.5% to RM5.37bn) also registered a downward trend during the month.
  
  - On the contrary, exports to the US increased by 3% to RM15.02bn buoyed by solid exports of machinery, equipment and parts, iron and steel products as well as optical and scientific equipment.
  
  - Looking at specific sectors, exports of agriculture goods decreased by 17.3% YoY to RM7.79bn. Meanwhile, exports of manufacturing and mining goods increased moderately by 0.7% and 0.2% YoY, respectively to RM10.74bn and RM10.44bn.

• A contrast performance was observed in Malaysia's total imports, with a significant increase of 12.5% YoY to RM115.83bn, higher than February 8.0% YoY (consensus estimates: +9.8% YoY). On a monthly basis, total imports rose by 15.7% from RM112.24bn in the previous month.
  
  - China remained as Malaysia's top source of imports, recording total imports of RM22.62n, which accounted for a 19.5% share of Malaysia's imports. Imports from China rose by 6.9% YoY. The rise in imports from China was driven by an increase in petroleum products (71.2% YoY), followed by E&E products (8.9% YoY) and transport equipment (48% YoY).
  
  - Imports from Singapore was worth RM13.8bn, accounting for 11.9% of Malaysia's imports, rose 5.9% YoY. The growth was propelled by E&E products (5.6% YoY), chemical & chemical products (25.5% YoY) and machinery, equipment & parts (16.9% YoY).
  
  - Looking at specific sectors, imports of all segment, namely, manufacturing (10.9% YoY; RM96.04bn), agriculture (9.4% YoY; RM6.29bn) and mining (21.6% YoY; RM11.42bn) sector registered a growth during the month.

Our Views

• Total exports in the first quarter of this year have seen an uptick, marking a 2.2% YoY increase to RM362.41bn. This contrasts with the previous quarter's decline of 6.9% YoY. Concurrently, total imports have surged by 13.1% YoY to RM328.19bn, showing a substantial rebound from the previous quarter's 1.3% YoY growth. This dynamic has resulted in a trade surplus of RM34.22bn. Moreover, the overall trade volume for the period has reached RM690.59bn, indicating a promising annual increase of 7.1% compared to the previous quarter's decline of 3.2% YoY.

• Assessing the net exports, it appears that external demand might not serve as the primary driver of economic performance in the first quarter of 2024. While constituting a modest portion (4.7% of GDP in the previous quarter), the diminished trade surplus hints at a potential decline in net exports this time around. However, domestic demand remains robust, acting as a buffer against this weakness. According to advanced estimates from the Department of Statistics Malaysia (DOSM) (please refer to our supplementary report), growth for the first quarter of 2024 is projected to improve to 3.9% YoY, compared to 3.0% in the previous quarter.

• For this year, we anticipate improvement in trade performance, buoyed by growing demand from international markets, the anticipated recovery of China's economy, and a promising outlook for the global semiconductor market. Our current forecast maintains a growth projection of 4.8% for exports and 4.7% for imports in 2024.

• At the same time, we recognise the potential risks that could affect the trade outlook for this year. Recent events, the Iran-Israel crisis, underscore how geopolitical tensions can instigate trade disruptions. These disruptions may manifest in the form of tariffs, sanctions, and trade embargoes, impeding the smooth flow of goods and services. Consequently, established trade networks and supply chains face disruption, diminishing trade volumes and impacting both export and import markets. This reduction in trade activity not only affects businesses' revenues and profitability but also contributes to economic contraction, thereby dampening growth prospects and exacerbating inflationary pressures. Additionally, trade restrictions may provoke retaliatory actions from trading partners, further heightening economic strain.

• Any necessary adjustments will be made accordingly as we continue to observe a prolonged escalation in tensions.

Source: TA Research - 22 Apr 2024