Economic Update - May exports rebound, downside risks set to continue

- Amid the uncertainties in the global economy, particularly stemming from the Eurozone debt crisis and the slowdown in China, external demand volatility continues to impact Malaysia’s trade – as apparent from the data released yesterday.

- After contracting by 0.1% in the previous two months, exports growth in May expanded by 6.7% YoY, as exports of key products such as E&E and LNG to major economies improved significantly.

- The growth rate came as a surprise as it was very much higher than our house estimate of +3.5% and the market’s expectations of +4.5% YoY growth (source: Bloomberg poll).

- Imports outpaced exports for the sixth straight month, and accelerated with a 16.2%  YoY growth in May.

- The exports of E&E, Malaysia’s largest export goods with an estimated share of around 33% of total exports, expanded by 1.1% YoY vs. the previous month’s contraction of 6.8% YoY.

- Apart from the robust numbers in E&E, commodity exports also recorded strong growth rates in May despite the slowing global economy. Among them, exports of LNG expanded significantly by 40.6% YoY.

- In regard to market destinations, export growth to Singapore expanded strongly, by 16.6% YoY (April: +8.1% YoY). Othernotable improvements were growth of exports to the US (10.2% YoY) as well as Japan (12.1% YoY).

- On the back of the debt crisis, however, exports to the Eurozone, Malaysia’s 4th largest export destination in May, declined significantly as exports to the region decreased by 3.2% YoY. Alarmingly, exports growth to China slowed significantly to 1.4% YoY (April: +16.0%YoY).

- In the medium term, external demand will likely remain weak as the global economy faces major challenges in ensuring robust growth in the coming months.

- For the full year, while we maintain our view of a GDP growth of around 5%, the impact of slower external demand will likely intensify in the near term due to the weak global environment as well as the uncertainties in the Euro area. We will be closely monitoring developments on the global front.

Source: AmeSecurities