Malaysia exports fell 1.9%

Blame it on the drop in electrical and electronics production shipments in July.

According to OSK DMG, after two straight months of expansion, exports finally took a dip on the back of weak global demand. Exports fell 1.9% yoy in Jul from 5.4% in Jun. Market and we had been expecting gains of 3.5% and 5.2% respectively. Imports rose by a faster 9.5% yoy in Jul, almost thrice that of Jun. This led to a smaller trade surplus of RM3.6b as compared to Jun’s RM9.2b.

Here's more from OSK DMG:

The weakness in exports could be attributed to the drop in electrical & electronics products (E&E) shipments in Jul. E&E, which accounts for nearly a third of exports, declined 4.8% yoy in Jul vs. 2.1% in Jun – the first dip after two months of expansion. Exports of liquefied natural gas (LNG), which had risen by double-digits in the previous two months, fell by a hefty 27% yoy in Jul, while palm oil remained in the doldrums, contracting for the fifth straight month by 28.4% yoy.

Exports of refined petroleum products continued to expand strongly, rising 98.3% yoy in Jul vs. 38.5% in Jun. Demand from three of Malaysia’s top five export destinations were also down with shipments to China, Japan and the EU contracting by 13.1%, 1.4% and 20.5% respectively in Jul. The strengthening exports to Singapore and the US (up 25.8% and 14.6% yoy respectively) could not mitigate these declines.

The strength in overall imports in Jul came from stronger growth in capital and consumption goods imports with the former more than doubling the previous month’s gains to 34.7% yoy and the latter by 14.1% yoy. Intermediate goods import remained weak, dropping by 2.9% yoy in Jul, though this was a smaller decline that Jun’s -5.3%.

The dip in Jul’s exports showed that Malaysia like its trade-dependent peers in the region cannot escape the wrath of a slowdown in global demand. A protracted slowdown led by a EU recession, uneven growth in the US and slower Chinese growth could result in weakness in Malaysia’s exports ahead.

Already, exports were up by just 3.3% yoy in the first seven months of the year as compared to the 6.9% gain in the same period in 2011. However, we expect the impact of weakening exports to be mitigated by the government’s fiscal program, which would still allow the economy to expand by around 5.0% this year.

As we have discussed in another report issued earlier, we expect the OPR to be kept steady at 3.00% for the rest of the year and rate cuts are likely only if the external environment deteriorates to such an extent that it threatens domestic growth.