OVERVIEW

Exports recorded a material rebound in July, driven by the recovery in E&E exports and strong natural gas output though this was offset by the surprise drop in palm oil and palm-oil based shipments. Exports rebounded by 1.7% in July, a strong improvement against June’s 3.4% decline, pushed especially by the turnaround in E&E shipments which constitute 41% of total exports. Natural gas maintained its encouraging form with a solid YoY growth of 31.3%, setting the stage to become a key trade driver for Malaysia in 2019. Natural gas produced strong numbers in July on account of a 44.6% YoY jump in volume despite a 9.2% decrease in average unit value.

Imports pulled back again in July though it managed to halve the deficit from June (July: -5.9%; June: -9.8%), affected especially by the sustained drop in capital imports as sentiment was shaken by unresolved US-China trade negotiations. The steeper drop in imports churned out a favourable trade surplus however, jumping a strong +75.6% YoY to RM14.2bn, our second highest for the year. Cumulative surplus of RM81.6bn that has expanded 15.9% on a YoY basis is respectable by all measures given the on-going trade uncertainty. This may eventually be a concern as it may affect growth momentum amid a material slowdown in capital imports. The slowdown could affect gross fixed capital formation (GFCF) momentum which constitutes about 25% of the economy.

E&E exports recovered for the month (July: +4.5%; June: -6.0%) and could continue to be volatile given unresolved trade negotiations. Rubber exports delivered another positive momentum (July: +25.5%) benefitting from the low base effect and recovery in prices though palm oil and palm-oil based output suffered a surprise pullback (July: -9.9%) due to the drop in average unit value (-15.8%). A sustainable recovery could be in-sight for both should trade tensions ease but this is a remote prospect at the moment.

Malaysia’s positive exports performance in July (+1.7%) was joined by China (+3.3%), Thailand (+4.2%) and Vietnam (+4.5%) though we note Vietnam’s decelerating exports which was its 3rd slowest for the year. This leaves only Singapore (-11.2%) and Indonesia (-5.2%) with sustained export contractions in the region. The month of July marks Singapore and Indonesia’s 6th and 7th export contractions for the year, highlighting the pains of trade war over the two countries’ economies.

Outlook on global trade remains uncertain amid sluggish PMI indices which have remained below the neutral level (global – July: 49.3; June: 49.4). There has been synchronized drops in major economies’ PMI indices led by the US (August: 49.9; July: 50.4), China (August: 49.5; July: 49.7) and Japan (August: 49.3; July: 49.4). This indicator may slip further unless there is breakthrough in US-China trade negotiations.

July 2019 exports. Exports rebounded materially (July: +1.7%; June: -3.4%), pushed especially by the turnaround in E&E shipments (July: +4.5%: June: - 6.0%). Natural rubber exports continued on its upward momentum in July, thanks to the low-base effect and recovery in prices though palm oil and palm oil based performance slipped due to the pullback in average unit value. Uncertainties and prolonged tensions over trade negotiations is likely to result in delayed recoveries for the agriculture sector.

Export value recovered to RM87.9bn in July (June: RM76.1bn) pulled up by the surge in E&E exports (July: +4.5%; +RM1.5bn). On a monthly and seasonally adjusted basis, exports ticked up a strong 15.5% growth, a significant rebound against the month before (June: -6.5%).

Source: PublicInvest Research - 5 Sept 2019