CGSCIMB, in its Economic Note today (Nov 21), cited they think Malaysia’s exports may turn positive in early-2024F, amid better international trade condition and dissipating high base effect in 2022.
Malaysia’s Oct exports growth declined at a softer pace of -4.4% yoy (vs. double digits in Sep), better than CGSCIMB’s expectation and Bloomberg consensus. October’s imports of consumer goods rose vs. Sep, highlighting possible consumption resilience.
Sustained positive growth for monthly exports
Malaysia’s Oct exports growth declined at a softer pace of -4.4% yoy vs. the double-digit yoy contraction reported in Sep, better than our and Bloomberg consensus’ expectations.
Exports of manufactured goods fell at a slower pace of -3.5% yoy in Oct (vs. Sep’s -11.9% yoy), dragged by slow shipments of electrical and electronics (E&E) products (-2.3% yoy) and optical and scientific equipment (-2.5% yoy).
Meanwhile, exports of agriculture products increased 3.3% yoy in Oct, after 12 months of yoy decline, amid higher shipments of natural rubber (+26.2% yoy) and other agriculture products (+39.2% yoy).
Imports signal sustained domestic demand
On imports, growth declined by 0.2% yoy in Oct (vs. Sep’s -11.1% yoy), dragged by the intermediate goods component.
However, demand for consumption goods rose 9.9% yoy (Sep: -0.5% yoy), its strongest growth since Dec 22, due to higher imports of processed food and beverages mainly for household consumption.
CGSCIMB thinks this somewhat echoed the recent strength in private consumption, with the recent 3Q23 data pointing towards a better growth of 4.6% yoy (vs. 2Q23: 4.3%).
This also marks a good start for 4Q23 private consumption performance despite downward pressure from the normalisation of interest rates and a weak global environment, in their view.
CGSCIMB has concerns, however, with possible structural adjustments, mainly subsidy rationalisation, affecting domestic demand.
Weak exports with China signal slower recovery ahead
By destination, after declining for seven consecutive months, Oct’s trade with China (which accounted for 17.7% of Malaysia’s total trade) increased by 1.9% yoy. However, Oct exports to China remained in contraction on a yearly basis at -7% yoy, albeit better than Sep 23’s -17.3% yoy, signalling a gradual recovery ahead.
E&E recovery may provide some positive sentiment
In terms of E&E products, Malaysia’s Oct exports growth showed some improvement on a yoy basis; CGSCIMB expects more material improvements by early next year.
S&P Global Electronics PMI data recorded its sharpest deterioration since mid-2020, owing to weak global demand.
However, S&P viewed that following a softer cost of inflation, where prices will face slower increase, may ‘allay some pressures on demand from a price perspective’.
CGSCIMB believes that with global semiconductor sales recording a single-digit contraction yoy in Sep, demand improvement in the E&E sector could be in the cards.
They anticipate Malaysia’s exports to progressively increase in 2024F, amid better international trade conditions, with exports growth likely turning positive by early-2024F.
Lower trade surplus marks a poor start for 4Q23F Malaysia recorded a lower Oct trade surplus of RM12.9bn (vs: RM24.4 in Sep), marking a poor start for 4Q23F.
On a cumulative basis, the trade surplus narrowed slightly to RM190bn for the 10M23 (vs. a surplus of RM206.4bn in the corresponding period in 2022).
Recovery in the services account, following an increase in foreign tourist arrivals, could support the current account although CGSCIMB believes it is unlikely to offset sluggish global goods demand.
With the 3Q23 current account surplus released last week registered at 2.0% of GDP, the trajectory for a softening current account in 2H23F goes in line with expectations.
CGSCIMB maintains their current account forecast for 2023F at 1.6% of GDP (2024F: 2.2% of GDP).
