Wednesday, October 5

Analysts lower growth rate as Malaysia sees lowest trade surplus in 45 months


The cumulative trade balance in the first eight months remained substantial at RM70.5 billion, and still significantly higher as compared to RM63 billion in the same period last year. — Reuters photo

KUCHING: A sharp slowdown in Malaysia’s exports relative to its imports in August led to a narrow trade surplus balance to RM1.6 billion – the lowest surplus seen since October 2014.

This led analysts to lower their growth expectations for the country.

Kenanga Investment Bank Bhd (Kenanga Research) saw that exports growth fell by 0.3 per cent year on year (y-o-y) in August – the lowest for the year – below consensus and house forecast of 5.7 and 9.1 per cent respectively.

“On a monthly basis, it fell sharply by five per cent. The month’s slower exports growth largely due to high base effect as well as the impact of escalating trade friction between the US and China along with fears of contagion risk in the emerging market triggered by the Turkish lira crisis,” it said in an analysis yesterday.

“Electrical and electronics (E&E) and crude oil receipts remain major contributors to the month’s exports growth but on a slowing trend. E&E exports growth moderate to 3.2 per cent y-o-y in August.

“Similarly, exports of crude petroleum increased by 70.8 per cent y-o-y. Brent crude price averaged around US$72.5 per barrel in August. We expect exports of crude petroleum to sustain its uptrend in September as average Brent price continue to increase to US$79.9 per barrel.”

Kenanga Research saw that exports of commodities continue its downtrend – it fell 6.3 per cent y-o-y as shipments of palm oil, includes crude and processed, and liquefied natural gas (LNG) fell by 22.9 and 20.4 per cent y-o-y respectively.

RHB Research Institute Sdn Bhd (RHB Research) believed a shorter working month due to public holidays and worries over the US’ threat of slapping more tariffs on China by September 2018, might have caused the weak August trade numbers.

“We expect trade momentum to remain weak for the rest of the year and into 2019, and maintain our 2018 export forecast of 6.5 per cent.

“This is on account of a weaker global trade outlook and slowdown in demand from China for the country’s exports,” it said in a separate report.

“The current account surplus of the balance of payments is expected to narrow to RM39.3 billion or 2.7 per cent of GDP in 2018, from three per cent of GDP in 2017.”

However, Affin Hwang Investment Bank Bhd (AffinHwang Capital) saw that the cumulative trade balance in the first eight months remained substantial at RM70.5 billion, and still significantly higher as compared to RM63 billion in the same period last year.

“We continue to expect Malaysia’s exports of goods and services (in real terms) to expand by 4.2 per cent year on year (y-o-y) for 2018, albeit lower than the 9.6 per cent in 2017, partly due to the high base effect,” it said in an analysis yesterday.

“We expect the country’s trade surplus to remain sizeable from September onwards, and unlikely to turn into a deficit position. The year-to-date trade surplus remained high, representing 72 per cent of our full-year forecast of RM97.5 billion.”

Kenanga Research highlighted that exports to Malaysia’s top three destinations slowed, whereby exports to Singapore and US declined by 2.2 and two per cent respectively.

Meanwhile, exports to China slowed to 4.5 per cent y-o-y in August, after a surged in July by 37.5 per cent.

“So far, the US has imposed tariffs on US$250 billion worth of Chinese products imported to the nation since trade war erupted in July, about half of the US$505 billion that the US imports from China in 2017,”

“On year-to-date, exports growth has slowed to 6.3 per cent y-o-y compared to 22.3 per cent in the same period of 2017, as global demand slows coupled with the on-going trade war.

“Hence, we maintain our projection that the 2H18 export growth to moderate between three to five per cent from seven per cent in the first half of 2018 (1H18) thereby contributing to a lower 2H18 GDP growth forecasts of 4.8 per cent versus 4.9 per cent in the 1H18.

“This would result in a slower GDP growth projection of 4.8 per cent for this year compared to 5.9 per cent in 2017 as external factors are expected to weigh down on Malaysia’s economy.”