Malaysia: June 2018 trade

By Michelle Chia, Economist, CIMB Research and Economic and Lim Yee Ping, Economist, CIMB Research


HIGHLIGHTS

June 2018 trade

  • Trade surplus surprised on the downside on strong acceleration in gross import growth, and weaker-than-expected expansion in gross exports.
  • Taxable goods and services shrink from 60% of CPI basket under GST to 38%.
  • We expect 2Q18 GDP growth to ease further to 5.2% due to stronger pick-up in import volume.
  • Regional trade performance in 2H18 will be key to watch out for with the start of US-China tariffs in July and companies mulling factory relocation out of China.

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Growth in imports outperformed exports for the first time in 2018
Trade surplus narrowed surprisingly to a 13-month low of RM6.0bn in June (CIMB: RM11.1bn, Bloomberg consensus: RM9.3bn; RM8.1bn in May), as gross imports outperformed gross exports for the first time this year. Import growth quickened to +14.9% yoy (CIMB: +7.1% yoy, Bloomberg consensus: +15.3% yoy; May: +0.1% yoy), double the +7.6% yoy pace for gross exports (CIMB: +7.8% yoy, Bloomberg consensus: +10.3% yoy; May: +3.4% yoy). Re-exports have been the key driver of trade performance in 2018, without which the performance of domestic exports (-0.8% yoy in June vs. -0.3% yoy in May) and retained imports (+6.2% yoy vs. -4.6% yoy in May) is more subdued.

Moderating O&G exports the key drag on export performance…
O&G export growth (+7.6% yoy in June vs. +26.6% yoy in May) was dragged by 31.2% yoy decline in LNG exports (+61.0% yoy in May) due to technical issues at Petronas’s LNG facility in Bintulu. Shipments of crude petroleum and refined petroleum products collectively rose 35.4% yoy (+18.9% yoy in May) on the back of higher oil prices. We expect O&G exports to pick up in the coming months on 1) the commencement of LNG deliveries to a Japanese company under a 10-year agreement in August, and 2) the resumption of Bentara crude exports after field upgrade which bumps up production from 50,000bpd in 2015 to 150,000bpd currently.

… but manufacturing exports came to rescue
Stronger growth in key industries helped to lift manufacturing export growth (+12.7% yoy in June vs. +3.2% yoy in May): E&E (+6.9% yoy vs. +2.1% yoy in May), chemicals (+31.6% yoy vs. +14.6% yoy in May), machinery, appliances and parts (+10.4% yoy vs. – 12.2% yoy in May), as well as optical and scientific equipment (+30.9% yoy vs. +13.4% yoy in May).

Broad recovery in end-use imports after the tumble in May
End-use import demand improved broadly on the back of festive celebrations and zerorated Goods and Services Tax (GST). The growth was led by capital goods (+14.1% yoy vs. -0.5% yoy in May), consumption goods (+4.9% yoy vs. -10.2% yoy in May), and intermediate goods (+3.1% yoy vs. -5.3% yoy in May).

Real GDP likely received less support from net exports in 2Q18
The positive contribution of net exports to GDP growth likely eased in 2Q18 (+4.0% pts in 1Q18) as the increase in 2Q18 trade surplus (+12.9% yoy to RM27.2bn) paled in comparison to 1Q18 (+76.8% yoy to RM33.4bn). We expect GDP growth to ease further to 5.2% (+5.4% yoy in 1Q18). National accounts and balance of payments data for 2Q18 are due to be released on 16 August.

No de-escalation in US-China trade tension yet
Global trade tensions are heating up with the US now studying the possibility of raising the proposed import tariffs on US$200bn worth of Chinese goods from 10% to 25%. Given the start of US and China tariffs on 6 July, we are watching out for July’s regional trade performance to ascertain the degree of trade disruption or whether there are potential winners from the displacement of demand in the targeted goods.

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Originally published by CIMB Research and Economics on 3 August 2018.