Exports hit record high in October
Manufactured goods and strong China demand drive shipments
PETALING JAYA: Amid rising global trade tensions, Malaysia’s exports rose to a record high of RM96.4bil in October after growing at a higher-than-expected rate of 17.7% from a year ago, powered by manufactured goods, and with shipments to China picking up strongly.
Adding to the positive development was the fact that the country’s trade surplus widened to the highest-ever recorded of RM16.3bil from RM15.3bil in the preceding month, or up 63.1% from about RM10bil a year ago.
According to the Statistics Department, export growth in October was driven primarily by increased shipments to China, in particular, and followed by Hong Kong, Singapore, Taiwan and Australia.
Product-wise, growth was driven by electrical and electronic (E&E) products, refined petroleum products, liquefied natural gas (LNG), crude petroleum and timber products.
The strong export performance in October exceeded analysts’ expectations for a growth of 5.8% year-onyear (y-o-y), and for the country’s trade surplus to narrow to RM11.6bil.
During the month in review, Malaysia’s imports grew 11.4% to RM80.1bil, with growth mainly attributed to increased purchase of consumption goods and intermediate goods, while import of capital goods shrank.
MIDF Research noted that the export growth rate in October – the second highest of the year – signalled a better outlook for the fourth quarter of 2018.
“Export growth for the third quarter of the year averaged at 5.3% y-o-y (the lowest gain in seven quarters) from 8.4% y-o-y in the second quarter.
“However, looking ahead to the final quarter of 2018, we expect export to perform better than the earlier three quarters, in line with our yearly forecast of 7.3% y-o-y (growth),” the brokerage said in its report.
In 2017, Malaysia registered a full-year export growth of 18.9% y-o-y.
Explaining its expectation of a slower export growth for 2018, compared to the prior year, MIDF Research said that for the first 10 months alone, Malaysia’s exports had already slowed drastically to 7.5% y-o-y, compared with a double-digit growth of 21.2% y-o-y in the corresponding period in 2017.
“The moderating pace is consistent with global commodity prices, expectation of a slight slowdown in overall business performance on top of the uncertainty over Sino-US trade conflict,” it said.
MIDF Research pointed out that risks to the global economy remained despite the recent trade truce between the US and China, as it did little to deal with the core sticking points of the duo’s economic rivalry.
RHB Research Institute noted that October’s export growth surged strongly, mainly driven by frontloading activity from Chinese importers in anticipation of further US tariff hikes.
The brokerage’s economist Vincent Loo said the growth momentum might continue in the coming months following the trade ceasefire and ongoing negotiations between the US and China.
“We expect the strong trade momentum to continue in the coming months, as frontloading activities will likely prevail following the trade ceasefire and ongoing negotiations between the US and China.
“Barring any new announcements between the two countries, we are keeping our forecast for gross export growth at a slower 4% in 2019, from 5.7% estimated for 2018, on account of weaker global trade outlook and slowdown in demand from China,” Loo said.
Earlier in a statement, RAM Rating Services Bhd research head Kristina Fong said despite the uncertainties over the US-China trade war, Malaysia’s export momentum in October was strong as global value-chain activities would likely be sustained by “front-loaded orders”.
This came amid greater concerns over the rise in US tariff rates – from 10% to 25% – on US$200bil worth of China’s imports that had earlier been scheduled to take effect on Jan 1, 2019.
Fong noted that while the slated tariff hike had now been put on hold for 90 days from Dec 1 to allow time for fresh negotiations between US President Donald Trump and China’s President Xi Jinping for a new trade deal, uncertainties remained.
“Although this pauses an escalation of the trade war for now, uncertainties still cloud external demand prospects. As such, the current front-loaded demand momentum could taper off temporarily in the lead-up to the end of the 90-day window next February,” Fong explained.
Moody’s Investor Service echoed similar sentiment, noting that despite a temporary de-escalation of hostilities following the G20 summit over the weekend, the relationship between the US and China would remain contentious, adding that the narrow agreements and modest concessions in the ongoing trade dispute would not bridge the wide gulf in their respective economic, political and strategic interests.
“The US and China have differences that are deep and multi-faceted, leading to diverging national and commercial interests,” Moody’s managing director Atsi Sheth said.
“As China increases its influence in global economics and politics and the US retrenches its international engagement, the relationship between the two powers has entered a new, tense and uncertain phase,” he explained in a statement.
Moody’s said neither China nor the US would likely to cede its key national priorities to defuse their tensions. However, the rating agency said, an economic cold war that could lead to decoupling would be costly for both countries, owing to their interlinkage.
Therefore, US-China relations would likely swing between conflict and compromise, Moody’s said, adding that worsening of tensions would disrupt global trade, erode the effectiveness of the international multilateral trade regime and dampen growth, besides having a negative impact on global credit conditions.
In October, Malaysia registered an increase of 19.9% in export of manufactured goods to about RM81bil, which accounted for 84% of the country’s total exports during the month review.
Exports to China, in particular, picked up strongly in October, rising 33% y-o-y to RM15.1bil, while imports from the world’s second-largest economy increased 7.6% y-o-y to RM14.59bil.
Overall trade with China, which absorbed 16.8% of Malaysia’s total trade during the month, expanded by 19.1% y-o-y to RM29.7bil.