Malaysia External Trade Exports fell by 1.9% July whilst imports grew by 9.5%

Exports for the month of July unexpected took a turn for the worse, falling by 1.9% YoY, far below market expectations for a 3.5% growth. This is due to the slowdown in demand from the EU and surprisingly, from many parts of Asia. Compared to the previous month, exports fell 4.7% and year-to-date, it grew by 3.3% compared to 6.9% in the same period of 2011.

Imports on the other hand showed a more positive outlook, its growth improving by 9.5% YoY. On a monthly basis, it expanded by 5.3% and year- to-date, registered a 8.2% increase. With stronger imports trade surplus narrowed to RM3.6b in July, narrowest seen since 2002. Total trade balance year-to-date records at RM54.7b.

With the exception of refined petroleum products and optical & scientific equipment, all other major export groups suffered a decline in the month of July. E&E exports fell by 4.8% YoY as demands from Asia and the EU declines. However, there was a 13.2% improvement in the E&E exports to the USA but question still remains on whether or not this demand is expected to sustain into year-end. There were also expansion of E&E exports to Singapore and Vietnam.

For the first time since end-2009, the mining and commodity sector suffered a decline, falling by 16.1% YoY in July. Worse hit was exports of crude petroleum (-29.9%), palm oil (-28.4%) and LNG (26.9%). This on-going fall in palm oil exports is the effects of the drop in CPO prices and production and is expected to make a rebound year-end. There were however improvements in refined petroleum products (+98.3%), optical & scientific equipment (+42.4%) and machinery & appliances (+6.2%).

Heading into individual trade partners, Singapore is Malaysia’s top export destination in July, recording at RM9.1b, which is a staggering 25.8% YoY increase. Being an intermediary exporting country, the strength of demand seen from Singapore is indicative of a better global performance up ahead. There was also a vast improvement in exports to the USA, which grew by 14.6% due to higher shipments of E&E products and optical & scientific equipment. The situation in China and Japan however did not fare as well, falling by 13.1% and 1.4% respectively. China has been suffering the effects of poor demand from western countries and has been implementing various policies in hopes to boost domestic demands. However, with many American companies now opting to return to their homeland and Europe is in the throes of recession, demand from China is not expected to be very solid. The fall in Japanese demand is due to the decrease of LNG exports but is expected to make a rebound. Unsurprisingly, exports to the EU suffered a 20.5% decline.

On the domestic front, imports once again exceeded expectations. There was a double-digit growth of 34.3% in capital imports. This level of Source: University of Michigan Consumer Sentiment Index, expansion is expected to continue as major developments under the ETP Bloomberg, Kenanga Research, remains at full steam. Similarly, imports of consumption goods remains strong at 14.1% growth suggesting that domestic consumer demand remains healthy. Only intermediate imports suffered decline (-2.9 YoY), indicative that the overall global demand moving forward is not expected to be strong.

Looking forward, we do not expect the overall global situation to improve, not with Europe struggling to keep the Union intact and the USA not rebounding as well as hoped despite the election year. It is just as well that the government initiated the Economic Transformation Programme (ETP) when it did. Without such gross fixed capital formation boosting the domestic economy, Malaysia would not have been buffered from the global situation as well as it has been. With the 1H12 GDP remains relatively strong at 5.1% along with the expectation that domestic demand would continue to support growth we are maintaining our full-year 2012 forecast at 5.0%.

Source: Kenanga