08.10.2019 (The Malaysian Reserve) - MALAYSIA’S weak export growth in August was a result of slower demand amid ongoing protests in Hong Kong and escalating global trade tensions.
Kenanga Investment Bank Bhd (Kenanga IB) noted Malaysian shipments declined 0.8% year-on-year (YoY) last month, mostly on softer demand for electrical and electronics (E&E) products. Exports had risen 1.7% in July.
“Exports to Hong Kong dropped sharply by 15.4% YoY, dragging overall export growth by 1.1% amid escalating public protest and disrupting commercial flights in the nation,” Kenanga IB wrote in a note yesterday.
Anti-government protests in Hong Kong, first sparked by a proposal to introduce an extradition law, have affected the region’s tourism sector, stock markets and businesses, among others.
Exports to Singapore fell by 7.2% YoY, dragging 1% to the overall growth. The island republic’s exports have been declining for six straight months, mainly due to the US-China trade dispute and challenging external environment, the research house added.
Overall, Malaysia’s total trade fell by 6.6% YoY in August, signalling lacklustre demand in both domestic and overseas markets.
Weaker demand for thermionic valves and tubes, parts and accessories for office machines also contributed to lower shipments of E&E products.
Exports of crude petroleum fell for a second consecutive month at 40% as average Brent crude oil prices slid 18.6% YoY to US$59.04 (RM247.97) a barrel from US$72.53 a barrel a year ago.
“Recent unfavourable developments surrounding US-China trade talks and the fall of average Brent crude oil prices by as much as 20.4% YoY in September would weigh on crude petroleum exports in the near term,” Kenanga IB said.
On a brighter note, higher average crude palm oil prices in August at RM2,067 per metric tonne have led to a 16.7% YoY rebound in palm oil exports.
Malaysia’s imports dropped for the third straight month in August, led by the capital goods segment (down 31% YoY), followed by intermediate goods (lower by 13.9%) and consumption goods (down 12.8%).
Kenanga IB has forecasted exports to contract by 0.3% YoY for the year from its initial projection of a 1%-2% YoY growth.
“This would likely weigh on GDP growth in the second half of 2019 (2H19) which is projected to moderate to 4.2% from 4.7% in 1H19, bringing our full-year growth projection to 4.5%,” it added.
Ahead of the tabling of Budget 2020 this Friday, the research firm expects the government to pump-prime the domestic economy.
It anticipates Bank Negara Malaysia (BNM) to cut the Overnight Policy Rate (OPR) again by 25 basis points (bps) in November as the external sector remains bleak.
The next BNM’s Monetary Policy Committee meeting is slated for Nov 5.
BNM slashed the OPR by 25bps in May to 3%, citing signs of tightening financial conditions amid a slowdown in global and domestic economic activity.
MIDF Amanah Investment Bank Bhd said the slip in domestic exports was just a “temporary glitch”, with exports to rise again on higher liquefied natural gas (LNG) shipments.
“We opine that the commodity-based sectors, particularly LNG exports, will contribute to better growth for 2H19.
“Looking ahead to the third quarter of 2019, the performance of exports is expected to be quite vulnerable, especially with unresolved trade tensions,” MIDF said, while maintaining its exports growth forecast at 1.7% YoY.