Exports to weaken with slower global growth

KUALA LUMPUR: Demand for goods from Malaysia are expected to continue to weaken this year in line with the expectation of a slower global growth coupled with the impact of the trade war, analysts observed.

Kenanga Investment Bank Bhd’s research team in its Economic Viewpoint report, noted that Malaysia recorded its slowest exports growth in 28 months, declining further than expected.

It said, February exports unexpectedly fell by 5.3 per cent y-o-y, far below Bloomberg’s consensus and house estimate of 2.3 and 0.4 per cent respectively, marking its steepest decline since late 2016.

On a month-on-month (m-o-m) basis, it said, exports reported a much steeper drop of 22 per cent after a brief turnaround in January, mainly due to a sharp drop in demand from key exports’ destinations as well as declines in exports volume attributed to the shorter working month and the long Chinese New Year holidays.

Meanwhile, imports registered a bigger fall of 9.4 per cent and as a result, the trade surplus remained relatively high at RM11.1 billion but slightly lower than January’s level of RM11.5 billion.

“Exports to the US, Hong Kong and Indonesia led the slowdown,

Exports to the US, Hong Kong and Indonesia led the slowdown, each contributing a decline of 0.9 percentage point (ppt) to the overall yo-y export growth, followed by Singapore and Japan. Kenanga Research

each contributing a decline of 0.9 percentage point (ppt) to the overall y-o-y export growth, followed by Singapore and Japan.

“We expect the slowdown in demand for goods to continue this year in line with the expectation of a slower global growth coupled with the impact of the trade war,” the research team said.

Meanwhile, it noted that the 9.4 per cent fall in imports was the lowest since September 2009 and far below Bloomberg’s consensus and house estimate of 0.9 and 0.6 per cent respectively.

“The unexpected sharp fall in imports was mainly broad based with imports of capital goods registered the sharpest decline followed by consumption goods.

“Though imports of intermediate goods fell the least or 2.8 per cent y-o-y, it reaffirmed the fact that export-oriented industries are not building up inventories as much as they should to sustain full capacity, suggesting that economic activity may slow in the months ahead,” it added.

Despite the weak trade, Kenanga Research pointed out that the exports of electrical & electronics (E&E) continue to offset lacklustre demand in commodities.

“Though E&E exports registered a slower growth of 4.9 per cent y-o-y, its share of total exports remained relatively high at 38.8 per cent.

“Nonetheless, we expect the downtrend in the export of E&E to continue following the impact of the US-China trade tension.

“Meanwhile, exports of commodities declined by 8.9 per cent y-o-y, dragging overall export growth down by 1.1 percentage point mainly due to fall of exports’ receipts of crude petroleum, palm oil and rubber,” Kenanga Research explained.

All in, the research team said: “We maintain our view that trade performance would remain weak. This is in line with the latest Purchasing Manager’s Index (PMI) performance, which pointed to weak demand from overseas market specifically from Asian region though some firms reported that there was an improvement in demand from Germany and Japan.

“Overall, Malaysia’s PMI continue to fall for the six straight month to 47.2 in March (47.6 in February), reaffirming our outlook that the export-based manufacturing sector would continue to be weak.”

It added that although March exports could rebound strongly it would not be enough for 1Q19 y-o-y exports growth to outpace the 8.1 per cent posted in the 4Q18.

“This supports our view that GDP growth would slow in the 1Q19 at an estimated 4.4 per cent from 4.7 per cent posted in 4Q18. The economy is expected to be slower this year mainly because of the expected slowdown in global trade.

“The World Trade Organisation forecast merchandise trade volume growth to slow to 2.6 per cent this year, as world trade will continue to face strong headwinds after moderating in 2018 due to rising trade tensions and heightened economic uncertainty.

“Hence, we maintain our growth forecast for exports at four to six per cent for this year,” the research team said.

Meanwhile, exports of commodities declined by 8.9 per cent y-o-y, dragging overall export growth down by 1.1 percentage point mainly due to fall of exports’ receipts of crude petroleum, palm oil and rubber, Kenanga Research explained.