Malaysia exports plateaued by 5.4%

Imports growth also slowed 3.6% resulting to a larger trade surplus.

According to OSK-DMG, once again exports exceeded all expectations, expanding by 5.4% yoy in Jun even though this was a moderation from May’s 6.7%. We had been expecting a steeper slowdown of 3.7% in export growth, while market expectation was for a 3.1% increase. Imports growth slowed to 3.6% yoy in Jun from 16.2% in May, resulting in a larger trade surplus of RM9.2b as compared to RM4.6b in May.

The better-than-expected exports could be attributed to the stronger shipment of electrical & electronics products (E&E) in Jun. E&E, which accounts for nearly a third of exports, rose by a faster 2.1% yoy in Jun as compared to May’s 1.1%, not particularly exciting but was nevertheless the second consecutive month of expansion. Support also came from liquefied natural gas (LNG) and refined petroleum products exports, up 25.6% and 38.5% respectively in Jun, though these were a moderation from the previous month.

However, shipments of crude petroleum and palm oil continued to contract, dropping 12.1% and 14.1% yoy respectively. In terms of export destination, exports to ASEAN were up by just 4.2% yoy in Jun vs. 19.7% yoy in May, while shipments to the US rose a slower 4.9% yoy vs. 10.2% in May. Exports to China and Japan showed improvement, rising 13.2% and 24.9% yoy in Jun. In contrast, shipment to the EU contracted for the fourth straight month by a larger 8.3% yoy.

As for imports, the gains in intermediate goods import in May were not sustained, reverting back to contraction with a 5.3% yoy decline in Jun. In contrast, capital and consumer goods imports grew in Jun by 15.5% and 10.9% respectively, though these were a slowdown from the previous month.

Malaysia continues to outperform its peers in the region in terms of exports. The drop in its key commodity exports like oil and palm oil were more than offset by shipments of other non-oil shipments like E&E and LNG. However, we do expect the protracted European debt woes to slow demand for Malaysia’s exports. Already, exports have slowed to 3.9% yoy in 2Q from 4.4% in 1Q. But we continue to expect fiscal support from the government to offset this weakness in the external front and boost full-year GDP growth to around 5.2% in 2012. As for monetary policy, we now think it most likely that there would be no change in policy stance and for the OPR to be kept steady at 3.00% for the rest of the year, given benign inflation and still healthy economic growth.