Export growth contracted for the seventh straight month (-13.7% YoY; Aug: -18.7%), but beating expectations (KIBB: -17.8%; consensus: -16.5%), Meanwhile, on a MoM basis (8.2%; Aug: -1.5%): exports rebounded sharply following two straight months of contraction.
Kenanga Research’s Economic Viewpoint cited today (Oct 20) that, for 3Q23 (-15.2%; 2Q23: -11.1%): Overall, growth fell to the lowest since 3Q09 (-21.9%), reflecting subdued external demand during the quarter amid the impact of global economic slowdown alongside the high base effect recorded last year.
Slowdown persisted among key sectors and major export destinations. By destination major partners recorded growth contraction, led by JP (-25.4%; Aug: -19.4%), followed by CN (-17.3%; Aug: -20.3%), SG (-12.0%; Aug: -19.4%), and the US (-9.3%; Aug: -9.7%).
However, share to total exports expanded, led by SG (14.9%; Aug: 14.6%), followed by CN (13.4%; Aug: 12.8%) and the US (11.9%; Aug: 11.7%).
By sector, a sustained slowdown led by contraction in mining (-28.0%; Aug: -23.3%) sector, followed by the agriculture (-23.1%; Aug: -27.2%) and manufacturing (-11.8%; Aug: -17.7%) sectors.
Growth by product was mainly weighed down by petroleum products (-37.9%; Aug: -38.6% YoY), followed by liquified natural gas (-37.8%; Aug: -26.0%) and palm oil & palm oil-based products (-26.5%; Aug: -31.9%) in line with lower global commodity prices. Besides, exports of E&E, Malaysia’s major export product, remained subdued (-5.3%; Aug: -15.3%).
Imports fell (-11.1%; Aug: -21.2%), higher than Kenanga’s house forecast (-9.5%) but beating consensus (-12.1%). Weak import growth due to sustained weakness in both re-exports (-17.9%; Aug: -33.8%) and retained imports (-8.2%; Aug: -16.3%), albeit easing. Nevertheless, imports rebounded on MoM (2.1%; Aug: -1.6%).
By category, it was a broad-based slowdown led by intermediate (-15.6%; Aug: -22.5%), followed by capital (-5.4%; Aug: 5.3%) and consumption (-0.6%; Aug: -5.5%) goods. The 3Q23 (-16.3%; 2Q23: -11.5%) represented the weakest quarter since 3Q09, in this regard.
Kenanga cited that trade surplus jumped to a three-month high to RM24.5b (Aug: RM17.2b), beating expectations (KIBB: RM20.5b; consensus: RM21.7b). However, trade surplus in 3Q23 remained weak, it fell by 9.1% YoY (2Q23: -9.2%).
Meanwhile, total trade remained weak (-12.6%; Aug: -19.9%), but growth contraction eased during the month. Nevertheless, total trade during the quarter rebounded slightly to 1.7% (2Q23: -15.7%).
2023 exports forecast retained at -5.7% (2022: 24.9%) on hopes for a recovery in the final quarter, YoY to date (Jan-Sep), exports fell by 8.4%. This is attributed to lower commodity prices, weaker global trade activity, and the effect of the high base recorded last year. The slowdown is expected to extend towards the end of the year as the high base effect persists. Nevertheless, Kenanga expects growth contraction to ease as the high base effect dissipates, supported by China’s ongoing recovery. Likewise, we keep our cautious outlook on the external sector, as we expect demand to be weighed by a higher interest rate environment.
Given the slowdown in external trade recorded during the quarter, Kenanga expects 3Q23 GDP growth to fall sharply to 1.7% (2Q23: 2.9%), with full-year growth projected to settle at 3.5% – 4.0% (2022: 8.7%) and believe growth will continue to be supported by a resilient domestic demand.
Not a larger drag on 3Q 2023 GDP
Maybank Investment Bank (Maybank IB) highlighted that September 2023 saw further but lesser double-digit drops in exports and imports of -13.7% YoY (Aug 2023: -18.7% YoY) and -11.1% YoY (Aug 2023: -21.2% YoY) but trade surplus improved (Sep 2023: +RM24.5b; Aug 2023: +RM17.2b). 3Q 2023 exports and imports fell by larger -15.2% YoY (2Q 2023: -11.1% YoY) and -16.3% YoY (2Q 2023: -11.5% YoY), but trade surplus decline steadied at -9.1% YoY to +MYR59.1b (2Q 2023: -9.2% YoY to +MYR53.9b), suggesting net external demand will not be a larger drag on 3Q 2023 GDP.
The continued – but lesser – double-digit exports decline in September 2023 reflected smaller double-digit contractions in the exports of Manufacturing (Sep 2023: -11.8% YoY; Aug 2023: -17.7% YoY) and Agriculture (Sep 2023: -23.1% YoY; Aug 2023: -27.2% YoY) as Mining exports registered larger double-digit drop (Sep 2023: -28.0% YoY; Aug 2023: -23.3% YoY).
Manufacturing exports was weighed down by lower shipments of Petroleum Products (Sep 2023: -37.9% YoY; Aug 2023: -38.6% YoY), Other Manufactures (Sep 2023: -21.9% YoY; Aug 2023: -28.5% YoY), Chemical & Chemical Products (Sep 2023: -12.4% YoY; Aug 2023: -10.0% YoY), Palm Oil-based Manufactured Products (Sep 2023: -20.4% YoY; Aug 2023: -24.6% YoY) and Rubber Products (Sep 2023: -17.8% YoY; Aug 2023: -22.7% YoY).
Agriculture exports fell following the drop in palm oil & palm-oil based agriculture products (Sep 2023: -26.5% YoY; Aug 2023: -31.9% YoY) reflecting smaller decline in export price (Sep 2023: -16.5% YoY; Aug 2023: -43.2% YoY) while export volume growth moderated (Sep 2023: +21.2% YoY; Aug 2023: +108.9% YoY).
Mining exports were pulled down by weaker LNG (Sep 2023: -37.8% YoY; Aug 2023: -26.0% YoY) on decreases in both export price (Sep 2023: -31.1% YoY; -24.2% YoY) and volume (Sep 2023: -9.7% YoY; Aug 2023: -2.4% YoY).
Meanwhile, crude oil exports saw a shallower decline (Sep 2023: -13.9% YoY; Aug 2023: -22.5% YoY) as export volume growth (Sep 2023: +7.4% YoY; Aug 2023: +13.3% YoY) mitigated the drop in export price (Sep 2023: -19.9% YoY; Aug 2023: -31.6% YoY).
Similarly, imports fell for the seventh month, pulled down by imports for re-exports (Sep 2023: -17.9% YoY; Aug 2023: -33.8% YoY), imports of intermediate goods (Sep 2023: -15.6% YoY; Aug 2023: -22.5% YoY), imports of consumption goods (Sep 2023: -0.6% YoY; Aug 2023: +5.5% YoY) as well as imports of capital goods (Sep 2023: -5.8% YoY; Aug 2023: +5.3% YoY).… but not expected to be larger drag on 3Q 2023 GDP.
Maybank said, in 3Q 2023, both exports and imports fell by larger quantum of -15.2% YoY(2Q 2023: -11.1% YoY) and -16.3% YoY (2Q 2023: -11.5% YoY). However, a sliver of silver lining is the decline in trade surplus last quarter stabilised at -9.1% YoY to +MYR59.1b (2Q 2023: -9.2% YoY to +MYR53.9b), suggesting net external demand will not be larger drag to 3Q 2023 GDP,
To recap, net external demand (difference between exports and imports of goods and services that accounted for 4.6% of 1H 2023 GDP) shrank -3.7% YoY in 2Q 2023 (1Q 2023: +54.4% YoY) as real GDP decelerated to +2.9% YoY (1Q 2023: +5.6% YoY).
Export contraction likely to narrow in 4Q23F
CGSCIMB’s Economics Update expressed today that Malaysia’s exports fell 13.7% yoy in Sep 23 (Aug 23: -18.7%) vs. our estimate of a 15% slump and Bloomberg consensus’ 16.5% decline. This is the fourth consecutive month of double-digit contractions since Jun 23.
After declining in Jul-Aug 23, exports rebounded by 8.2% mom in Sep 23, driven by re-exports and domestic exports. In terms of products, exports of manufactured goods rebounded to +9.5% mom in Sep 23 (Aug 23: -3.1%), underpinned by stronger shipments of electrical and electronics (E&E) products (25.7%) and optical and scientific equipment (12.5%). Meanwhile, agriculture product shipments increased 5.8% mom in Sep 23 (Aug 23: 0.6%), amid higher shipments of palm oil (+9.5% mom vs. -1.2% in Aug 23). On imports, growth rebounded by 2.1% mom in Sep 23 (Aug 23: -1.6%).
Demand for consumption goods rose 2.9% mom (Aug 23: -2.5%) due to higher imports of semi-durable goods. Demand for vehicles led to a strong recovery in transport equipment imports and supported growth of capital goods imports in Sep 23.
Exports may have bottomed on high base and China stabilising
From a percentage yoy perspective, CGSCIMB believes that the double-digit contraction in Sep 23 is likely to start turning single-digit going forward in 4Q23F, although exports growth may still be in negative territory throughout the rest of 2023F. This will be partly helped by the dissipating base effect as well as stabilising demand from China as we enter 2024.
World Trade Organization’s (WTO) Oct outlook and statistics report reiterated its positive view on global trade growth of 3.3% yoy in 2024F (vs. +0.8% in 2023F), owing to ‘increased trade in goods closely linked to business cycle’ such as consumer durables as well as machinery, which tend to improve as economic growth stabilises.
Furthermore, China’s recent 3Q23 GDP number grew strongly by 1.3% qoq (vs. +0.5% qoq in 2Q23) with improvement in consumption and industrial activity. This suggests that government policy could support further recovery in the economy. This bodes well for Malaysia’s exports as China is Malaysia’s largest trading partner, accounting for 13.4% of total exports in Sep 23.
The double-digit growth of the E&E segment in Sep 23 indicates a potential recovery in shipments as global sales continued to improve on a monthly basis since Feb 23.
According to Semiconductor Industry Association (SIA), the monthly increase in global sales indicate steady improvement in market demand.
CGSCIMB believes that this could be due to attractive cost given the ringgit’s weaker performance relative to regional peers.
Trade surplus should continue to support current account
Malaysia’s trade surplus widened to RM24.5bn in Sep 23 (from RM17.2 in Aug 23). With the release of Sep 23 data, trade balance rose to RM59.0bn in 3Q23, higher than the RM53.9bn in 2Q22 but lower than the RM65bn in 3Q22.
On a cumulative basis, trade surplus remained sizeable at RM177.3bn in 9M23, although lower than the RM188bn in 9M22. They believe this should support Malaysia’s current account. CGSCIMB maintains their current account forecast at 1.6% of GDP in 2023F, although noting that the healthy trade surplus in 3Q23 poses an upside risk to the year’s estimate. The research house projects a current account surplus of 2.2% of GDP in 2024F.
