Data Highlight

• Malaysia's total trade in August 2024 rose by 18.6% YoY to RM252.65bn. This growth compares to 18.3% YoY increase in the previous month but slower from Jul’s RM255.83bn.

• Breakdown showed total exports rose strongly during the month. The absolute value of Malaysia's exports amounted to RM129.16bn, reflecting an increase of 12.1% from the Aug23’s RM115.18bn. This strong annual growth is anticipated previously as this is supported by the low base impact. Exports has been consistently registered a contraction in the 2H23. Consensus were looking for a growth of 11.8% YoY.

• Particularly, Malaysia's domestic exports witnessed a steady increase of 15.5% YoY to RM106.36bn (1.3% MoM), while re-exports dropped by 1.2% YoY to RM22.79bn (-12.6% MoM). On a MoM basis, total export declined marginally by 0.1% from May’s RM126.02bn.

• Among the top ten destination countries, performance was generally positive, with only two countries experiencing a YoY contraction. As usual, Singapore, China, and the US remained the primary contributors to Malaysia's exports for the month. These three countries collectively accounted for a substantial 41.8% of Malaysia's total exports, solidifying their positions as key destinations for Malaysian goods. However, the slowdown in Chinese and Singaporean has resulted both currently being the third and second largest market for Malaysian exports, behind the US.
  • The US led the main destination countries with a contribution of 15.2% to total exports. Exports to US was valued at RM19.65bn, increased by 45.4%. The increase was attributed to higher exports of electrical & electronic (E&E) products (41.5% YoY) and other manufactures (148.9% YoY).
     
  • Meanwhile, the value of exports to the Singapore (14.6% of total exports), worth RM18.88bn, increased by 12.4% YoY. The increase was supported by higher exports of E&E products (16.0% YoY) and petroleum products (8.7% YoY).
     
  • Exports to China (12% of total exports) rebounded by 4.8% YoY (Jul24: -11.4% YoY) to RM15.52bn on higher demand for E&E products and and rubber products.
     
  • Exports to EU increased by 8.6% YoY to RM10.39bn, aided by higher exports of palm oil-based manufactured products, rubber products as well as petroleum products. Exports to the EU major markets that recorded growth were Germany (19% YoY) and France (16.1% YoY) buoyed by higher exports of E&E products while exports to Spain (52.6% YoY) grew on higher exports of palm oil-based manufactured products.
     
  • Looking at specific sectors, exports of manufactured goods remained significant to the total exports in August 2024 with a contribution of 86.8%, recorded an increase of 14.1% YoY to RM112.08bn. The increase was supported by higher exports of E&E products (16.5% YoY), machinery, equipment and parts (21.2% YoY) as well as optical and scientific equipment (22.1% YoY). Exports of agriculture goods (7.1% of total exports) rose 19.4% to RM9.14bn, the fifth successive month of annual growth. by increased exports of palm oil and palm oil-based agriculture products (18.9% YoY), driven by higher export volumes and prices. Meanwhile, exports of mining goods (5.6% of total exports) contracted by 16.1% YoY to RM7.21bn on reduced exports of crude petroleum and liquefied natural gas (LNG) (-15.9% YoY) following lower export volumes and prices.

• A better performance was observed in Malaysia's total imports, with a significant increase of 26.2% YoY to RM123.49bn, and slightly lower than Jul’s 25.4% YoY (consensus estimates: 21.2% YoY). On a monthly basis, total imports declined by 1.0% from RM124.72bn in the previous month.
   
  • China remained as Malaysia's top source of imports, recording total imports of RM26.44bn, which accounted for a 21.4% share of Malaysia's imports. Imports from China increased by 26.3% YoY. The rise in imports from China was driven by an increase in E&E products (30.9% YoY), followed by machinery, equipment & parts (30.2% YoY) and iron & steel products (83.5% YoY).
     
  • Imports from the US was worth RM15.44bn, accounting for 12.5% of Malaysia's total imports, an outstanding increase of 115.7% YoY. The increase was driven by E&E products (242.6% YoY) and machinery, equipment & parts (116.5% YoY).
    
    The annual change in imports from all major countries of origin (Top 10) recorded an increase as compared to the same period last year.
     
  • Imports of manufacturing (25.7% YoY; RM104.03bn), agriculture (40.5% YoY; RM7.63bn) and mining (21.1% YoY; RM9.77bn) sectors registered a growth
     
  • Imports by end use recorded an increase for all three major categories. Imports of intermediate goods rose by 40.4% YoY, followed by an increase in capital goods of 39.6% YoY and consumption goods of 21.2% YoY.
     
• As a result from the higher growth of imports, trade surplus for the month narrowed to RM5.67bn, marking a 11.5% decline from the previous month's surplus of RM6.4bn. On a YoY basis, trade surplus contracted further by 67.3%, dropping from RM17.33bn in August of the previous year.

Our Views

• 8M24, total exports increased by 6.0% YoY, reaching RM991.36bn. At the same time, total imports surged by 16.8% YoY to RM913.18bn, reflecting sustained growth. This trend resulted in a trade surplus of RM78.17bn. Additionally, the total trade for the period amounted to RM1.904tn, marking a promising annual increase of 10.9%.

• However, concerns have emerged regarding the quarter-to-date figures. The trade surplus, a proxy for net exports in Gross Domestic Product (GDP) calculations, contracted by an average of 65.2% YoY in the first two months of the third quarter. This is notably weaker compared to the -42.7% YoY contraction recorded in the second quarter. Should Malaysia continue to post an unfavourable trade surplus in the coming months, it could weigh negatively on GDP performance. Nevertheless, in our view, the resilience of domestic economic growth will help cushion the impact of weak external demand.

• That said, the external trade performance aligns with our expectations, and we remain optimistic about an improvement in trade performance in 2024. While uncertainty lingers due to China’s sluggish recovery, we anticipate a rebound in demand from this key market. For instance, China has shown signs of recovery after two consecutive months of year-on year contraction. Additionally, we believe that diversifying exports and focusing on other markets will help mitigate any negative impact. The US, which continues to experience growth, emerged as Malaysia's largest export market during the period.

• Moreover, Malaysia has seen a notable increase in the import of intermediate goods from December 2023 to August 2024. This trend suggests that exports may rise soon, as intermediate goods are crucial for manufacturing final products. The increase in these imports indicates that Malaysian manufacturers are ramping up production to meet higher demand for finished goods both domestically and internationally. Maintain our projection of export growth of 7.0% and import growth of 10.6% for 2024.

Source: TA Research - 20 Sept 2024