Near-term export growth momentum remains intact, say economists after August figures beat expectations

Near-term export growth momentum remains intact, say economists after August figures beat expectations
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KUALA LUMPUR (Sept 28): Malaysia’s exports are seen to improve amid less disruption, after it grew at a faster pace of 18.4% year-on-year (y-o-y) to RM95.59 billion in August this year — the 12th consecutive month of y-o-y expansion since September 2020 — supported by both domestic exports and re-exports.

RHB Investment Bank senior economist Ahmad Nazmi Idrus said the improvement in August exports was stronger than expected as domestic reopening drives momentum up.

“We believe trade should propel forward, as more easing commenced in September,” he said in a note on Tuesday.

Given the improved trade data, he expects August industrial production, which recorded a contraction in July, to show a reversal.

According to Ahmad Nazmi, nearly all export subcomponents indicated an improvement in momentum.

“The increase reflects the government measures in allowing non-essential segments to operate beginning in mid-August. Meanwhile, essential manufacturing companies were allowed to increase their capacity based on the rate of fully vaccinated workers,” he added.

UOB Global Economics and Markets Research economists Julia Goh and Loke Siew Ting said Malaysia’s gross exports in August beat their estimate of 9.8% and Bloomberg consensus of 14.6%.

“Gradual relaxation of containment measures for some states during the month and year-ago low base effects bolstered the export growth last month,” they said.

They opined that the near-term export growth momentum remains intact.

“A sustained improvement in global demand and a persistent rise, albeit moderate, in imports of intermediate goods implies continued export orders ahead. Strong demand from the West for year-end festivities is also expected to create seasonal volume rushes over the next few months,” they said.

Goh and Loke also said Malaysia is on track to fully inoculate 100% of the adult population by end-October and enter an endemic stage that will bring more manufacturing capacity coming back online to meet export orders. “Thus, we maintain our 2021 full-year export growth forecast at 22% (2020: -1.1%).”

MIDF Research expects growing foreign demand for electrical and electronic (E&E) products, rubber products and commodities especially crude palm oil and liquefied natural gas (LNG) will continue to drive exports in the coming months.

However, the research firm said the recent resurgence in Covid-19 cases, signs of slowdown in China and continued supply chain bottlenecks could hurt trade and production outlook.

“We maintain our forecast for exports to grow at 13.5% y-o-y and imports to expand by 12.7% y-o-y this year,” it added.

Latest data released by the Department of Statistics Malaysia (DOSM) on Tuesday showed imports also expanding by 12.5% y-o-y to RM74.2 billion in August, leading to a trade surplus of RM21.39 billion, up 44.7% y-o-y.

The country’s trade rose 15.7% y-o-y to RM169.79 billion — the seventh consecutive month of double-digit growth since February 2021.

On a month-on-month (m-o-m) basis, however, exports, imports and trade declined by 1.8%, 11.2% and 6.1% respectively due to the slowdown in domestic economic activity, said DOSM.

DOSM said the expansion in exports was driven by petroleum products (+RM2.6 billion), E&E products (+RM2.2 billion), chemical and chemical products (+RM2.2 billion), manufacture of metal (+RM1.9 billion), LNG (+RM1.9 billion), palm oil and palm oil-based agriculture products (+RM1.4 billion), and palm oil-based manufactured products (+RM1.1 billion).

Meanwhile, the rise in imports was noted for E&E products (+RM3.3 billion), chemical and chemical products (+RM2.1 billion), iron and steel products (+RM1.1 billion), and petroleum products (+RM1.0 billion).

In terms of trade performance with major markets, Malaysia’s exports to Asean climbed 25% y-o-y to RM26.4 billion in August, owing to higher exports of E&E products and petroleum products.

Exports to China for the month improved by 5.7% y-o-y to RM15.19 billion following higher exports of LNG as well as chemicals and chemical products.

Malaysia's exports to the US also rebounded by 12.1% y-o-y to RM10.84 billion on higher exports of E&E products and rubber products as well as machinery, equipment and parts.

Exports to the European Union grew by 6.4% y-o-y to RM7.68 billion following higher exports of palm oil and palm oil-based products, manufactures of metal as well as petroleum products, while that to Japan surged by 40.8% y-o-y to RM6.31 billion, due to higher exports of LNG, manufactures of metal, crude petroleum, wood products as well as palm oil and palm oil-based agriculture products.

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Kang Siew Li