Exports contracted less than expected – UOB

Senior Economist Julia Goh and Economist Loke Siew Ting at UOB Group comment on the performance of the exports sector in Malaysia.

Key Takeaways

Export contraction narrowed for the second straight month to a single-digit of 4.4% y/y in Oct (from -13.8% in Sep), a strong signal that the worst may be behind us. The outturn came in better than our estimate and Bloomberg consensus of -5.0%. In comparison, import contraction narrowed at an even faster pace to just 0.2% last month (UOB est: -12.0% vs Bloomberg est: -9.3%, Sep: -11.1%), largely saved by a strong rebound in imports of capital and consumption goods. This brought trade surplus down to MYR12.9bn (from +MYR24.4bn in Sep), the smallest trade surplus in six months.

Oct’s export performance came after all three export sectors penciled in improvement, with exports of agriculture goods posting the first gain in 13 months. Exports of manufactured goods registered a smaller contraction following a turnaround in shipments of manufactures of metal; optical & scientific equipment; and machinery, equipment & parts. Exports of mining goods fell at a slower pace after the contraction in shipments of liquefied natural gas (LNG) tapered off. Demand also improved across almost all export destinations, with the US, Hong Kong, South Korea and India posting a positive increase.     

Reflecting the year-to-date (ytd) export performance (at –8.0% in Jan-Oct 2023) and signs of a further recovery in the global tech cycle amid expectations of a soft landing in the global economy, we revise our 2023 full-year export growth forecast to -7.2% (from -9.0% previously; MOF est: -7.8%, 2022: +24.9%). For 2024, we maintain our export outlook at +3.5% (MOF est: +5.1%) in view of lingering downside risks including tensions in the Middle East, tighter financial and monetary conditions for a prolonged period, persistent property sector drag on China’s economy and ongoing US-China trade conflicts.