Exports grew lower than expected in June

Transcription

1 Dr. Mohd Afzanizam Abdul Rashid Chief Economist Mohd Sazlee Hidayatullah Intern Exports grew lower than expected in June Facts Total exports in June grew by 7.6% y-o-y (May: 3.4%), lower than Bloomberg consensus estimates of 10.3% (Bank Islam: 5.7%). The main driver was Electrical and Electronic products (38.0% of total exports) which grew by 6.9% (May: 2.1%) to RM 29.9 billion from 2.1% in the preceding month. This followed by Refined Petroleum products (6.5% of total exports) which rose by 40.6% (May: 10.0%) or RM1.5 billion to RM 5.1 billion due to the increase in the average unit value and export volume by 19.1% and 17.3% respectively. Crude Petroleum (3.0% of total exports) increased by 25.3% (May: 45.8%) despite having a decline in the exports volume by 8.6%, as it had been outweighed by the increase in average unit value (37.2%). As for our main trading partners, there were expansion in exports to China (16.9% in June vs. 7.4% in May) and European Union (+5.6% in June vs. 11.4% in May) while exports to Singapore declined by 0.3% (May: -9.8%). Total imports grew significantly by 14.9% (May: 0.1%) led by higher growth in imports of Capital Goods which posted 14.1% gain during June from -0.7% in the preceding month. Similarly, imports of Intermediate and Consumption Goods rebounded to 3.1% and 4.9% after declining by 5.3% and 10.2% respectively in the previous month. As import grew higher than exports, trade surplus balance narrowed to RM6.0 billion from RM8.1 billion previously. For the 2Q2018, total exports expanded by 8.2% y-o-y from 5.8% previously while total imports accelerated to 7.7% after declining by 0.8% in the preceding quarter. As such, trade balance narrowed from RM33.4 billion in the 1Q2018 to RM27.2 billion in the 2Q2018. Cumulatively, total exports recorded a modest growth of 7.0% in the first six months of 2018 versus 20.9% in the same period last year. Similarly, total imports rose 3.4% in the 6M2018 from 23.2% in the same period last year. Trade surplus balance widened from RM42.9 billion in 6M2017 to RM60.6 billion in 6M2018. For Internal Circulation Page 1

2 Chart 1: Export and Import y-o-y% 50.0% Trade bal. (RM bn) (rhs) Export Import 40.0% 30.0% 20.0% 10.0% 0.0% -10.0% -20.0% Jun-16 Oct-16 Feb-17 Jun-17 Oct-17 Feb-18 Jun Chart 2: Exports and imports in RM million 100,000 82,820 84,467 84,247 82,110 78,656 80,000 73,153 70,343 69,779 71,225 73,994 72,611 61,325 60,000 40,000 20,000 - Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Total Exports Total Imports Chart 3: Export Volume Index (EVI) y-o-y% 25.0% 20.0% 15.0% 10.0% 5.0% 15.4% 5.0% 0.0% -5.0% -1.2% -10.0% Jun-16 Oct-16 Feb-17 Jun-17 Oct-17 Feb-18 Jun-18 Source: Bloomberg For Internal Circulation Page 2

3 Chart 4: Global PMI for Manufacturing Sector Jul-16 Mar-17 Nov-17 Jul-18 Source: Bloomberg Chart 5: US Institute for Supply Management (ISM) Index - Manufacturing Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 Our view While exports growth has improved, the tell-tale signs from business sentiment suggest that its momentum could soften. This is largely due to global manufacturers are affected by the trade tension between the US and China. The US Institute of Supply Management (ISM) index for the manufacturing sector has fallen to 58.1% in July from 60.2% in the preceding month. This has vindicated our view that Malaysia s export growth would slow in the 2H2018. Judging from the ISM survey responses, it was found that Computer & Electronic Products industries have been working on contingency plans for the tariff imposed by Chinese government. For Internal Circulation Page 3

4 Meanwhile, the tariff has led to customs inspection-time increases on imported raw materials from China for Plastics & Rubber Products. As for Transportation Equipment industries, the respondents have indicated that they are reviewing the business case for importing manufactured parts from China as the new tariff will result in increased costs that will pass along to their domestic customers. We resort to Vector Auto Regression (VAR) in order to see the optimum lag length criteria between Malaysia s exports and the US ISM Index for the manufacturing sector (see Chart 6). It appears that the most optimum lag length criteria is two which means exports responded to ISM in two months time. This can be seen from the Impulse Response Function whereby exports tend to rise in for the next two months whenever there is increase in ISM index. As such, exports should commence its slower growth in September since ISM Index for the manufacturing sector has declined in July. Variance Decomposition also showed that the US ISM Index for the manufacturing sector could well explained the movement in exports as opposed to Malaysian ringgit (MYRUSD) (see Table) Chart 6: Impulse Response Function (IRF) Response of Export to ISM Response to Cholesky One S.D. Innovations ± 2 S.E. 5,000 Response of EXPORT to ISM 4,000 3,000 2,000 1, , Source: Strategic Management, Bank Islam Table 1: Variance decomposition of EXPORT Period S.E. EXPORT ISM MYRUSD Source: Strategic Management, Bank Islam For Internal Circulation Page 4

5 Going forward, we should pay close attention to the US ISM Index for the manufacturing sector in order to gauge the turning points of Malaysia s exports. This is especially true when the trade friction between the US and China appears to be unlikely to resolved in the near term. In fact, it could worsen judging from the recent announcement of 25% new tariff instead of 10% for the USD200 billion worth of imports from China. Against such backdrop, we have revised down our exports growth from 8% to 6% for the whole of 2018 (2017: 18.9%) in view of the expected decline in the US ISM index. For Internal Circulation Page 5

6 Appendix Trade Statistics Y-o-Y% Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 6M M 2018 Export 17.9% -2.0% 2.2% 14.0% 3.4% 7.6% 20.9% 7.0% Import 11.6% -2.8% -9.6% 9.2% 0.1% 14.9% 23.2% 3.4% Trade balance (RM bn) Export by product Electrical & Electronic Products 27.2% -0.1% 8.8% 21.3% 2.1% 6.9% 20.5% 10.8% Palm Oil 10.4% -21.6% -6.6% 0.2% -15.4% -20.4% 28.7% -9.4% Liquefied Natural Gas 14.0% -11.8% -3.3% -12.5% 61.0% -31.2% 23.4% -2.6% Petroleum Products 2.1% 29.1% -8.6% 38.9% 10.0% 40.6% 26.8% 16.1% Machinery, Appliances and Parts 10.3% -7.5% 3.6% 3.9% -12.2% 10.4% 4.1% 1.1% Crude Petroleum 0.1% 3.0% 18.4% 22.7% 45.8% 25.3% 47.3% 18.4% Optical and Scientific Equipment 18.0% 11.7% -0.2% 7.7% 13.4% 30.9% 7.8% 12.9% Professional, Sci. & Controlling In 16.7% 16.8% 1.1% 9.1% 15.7% 36.5% 7.9% 15.1% Rubber Gloves 10.0% 4.7% -1.3% 2.9% 2.4% 24.1% 24.6% 6.6% Heating and Cooling Equi.& Parts -1.7% -19.1% 20.0% -18.2% -34.7% -6.2% -5.4% -10.9% Export by country Singapore 8.1% -6.0% -4.3% 3.7% -9.8% -0.3% 22.9% -1.6% China 17.9% -9.7% -4.7% 22.0% 7.4% 16.9% 41.2% 8.0% EU 13.6% -3.0% 5.3% 19.5% 11.4% 5.6% 22.0% 8.6% US 8.7% 3.3% -0.1% 1.7% -5.6% -1.9% 10.6% 0.8% Japan 3.3% -17.2% -3.5% -21.4% 16.0% -14.5% 21.9% -7.0% Thailand 16.8% -3.1% 9.5% 32.4% 18.4% 13.2% 14.6% 14.2% Hong Kong 129.9% 61.2% 62.1% 113.8% 34.8% 64.4% 23.1% 14.9% Australia -19.6% 15.8% -11.8% -14.5% -6.9% -4.7% 12.1% 31.2% Germany 18.8% 1.4% 9.8% 19.2% 34.9% 4.9% 20.5% -1.4% Vietnam 64.5% 24.8% -3.6% 44.2% 41.3% 30.6% 11.2% 74.9% Philippines 7.1% -5.1% -10.4% 13.6% -4.1% -9.3% 20.8% -8.3% Import by end-use Capital -3.1% 6.5% -30.4% 4.9% -0.7% 14.1% 23.4% -4.3% Intermediate -1.7% -14.8% -14.5% -11.8% -5.3% 3.1% 25.8% -7.6% Consumption 9.8% 12.6% -12.5% -1.8% -10.2% 4.9% 2.7% -0.4% For Internal Circulation Page 6

7 Produced and issued by BANK ISLAM MALAYSIA BERHAD (Bank Islam) for private circulation only or for distribution under circumstances permitted by applicable laws. All information, opinions and estimates contained herein have been compiled or arrived at based on sources and assumptions believed to be reliable and in good faith at the time of issue of this document. This document is for information purposes only and has no regard to the specific investment objectives, financial situation or particular needs of any specific recipient. No representation or warranty, expressed or implied is made as to its adequacy, accuracy, completeness or correctness. All opinions and the content of this document are subject to change without notice and may differ or be contrary to opinions expressed by other business areas or groups of Bank Islam as a result of using different assumptions and criteria. No part of this document may be used, reproduced, distributed or published in any form or for any purpose without Bank Islam s prior written permission For Internal Circulation Page 7