Malaysia Economic Flash – Deepening Trade Contraction in November Supports At Least Further 50bps of OPR Cuts in 1Q09

January 7, 2009 at 8:32 am Leave a comment

Announced: Wednesday, 7 January at 12:01 pm (Malaysia time)
Exports (%YoY) – Actual: -4.9, Forecast: -10.0 Consensus: -5.7, Previous: -2.6
Imports (%YoY) – Actual: -8.6, Forecast: -8.0, Consensus: -5.0, Previous: -5.3
Trade Balance (RM bn) – Actual: 9.6, Forecast: 10.3, Consensus: 11.45, Previous:
14.7

Bottom line
The further contraction in November trade points to the increasing likelihood that 4Q08 GDP could surprise significantly on the downside. Weak exports are consistent with export trends in the rest of Asia. Singapore, for example, saw non-oil domestic exports collapse by 17.5% in November. The export contraction is likely to continue into December, and at least into 1H09. Korea, the first economy to release export numbers for December, saw an 18.3% drop in exports in the month. Other leading indicators, including the US ISM PMI, and OECD leading indicator, and China’s PMI all suggest that external demand will soften significantly into 1H09. Falling imports reflect mainly weaker imports of intermediate goods used to produce exports, although there are some signs of slowdown in domestic demand as well. Recent data, both on external and domestic demand have not been encouraging and we see downside risks to our GDP forecast of 2.6% for 4Q08, and 3.1% for 2009. This supports our view of at least a further 50bps cut in the OPR in 1Q09, and the probability of further cuts could be rising, in our view.

In brief
November exports fell for the second consecutive month, contracting 4.9% from a year ago, worsening from a 2.6% contraction in October, although this was slightly better than consensus expectations for a 5.7% decline. On a month-on-month, seasonally adjusted basis, exports fell 0.6% (October: -12%). Import growth similarly fell by 8% from a year ago (previous -5.3%), or falling 0.5% on a month-on-month, seasonally adjusted basis (previous: -5.4%), marking the fourth consecutive month of decline. The monthly trade surplus widened to RM11.5bn in
November, from RM9.6bn in October.
Export weakness was broad based, with 6 out of 10 categories of exports contracting. The fall was led mainly by electrical and electronics (E&E) products (November: 10.6%, October: -12.6%). Commodity exports also showed weakness on price declines, particularly of crude petroleum (November: -0.2% October: 5.8%), refined petroleum products (November: -31.1%, October: -13.6%) and CPO (November: – 19.1%, October: -4.6%). Only exports of liquefied natural gas accelerated (November: 116.6%, October: 95.3%). Outside of E&E and commodity exports,
contractions or slowdowns were observed in chemicals products (November: – 18.9%, October:-6.3%), metal products (November: -6.5%, October: 2.7%), and wood products (November: 3.9%, October 7%). Only machinery and appliances (November: 3.4%, October:-4.4%), and optical/scientific equipment outperformed (November: 17.6%, October: 12.5%) showed improvement. By market, exports to the US fell 17.2% (October: -18.9%) from a year ago, as did sales to China (November: -18%, October: -7.1%) and those to Hong Kong fell
21.6% (September: 9.9%), possibly reflecting weakness in indirect exports headed for China. With 68% of Malaysia’s exports to China used to supply China’s exports rather than its domestic demand, this data is consistent with recent weakness in Chinese exports and production. Exports to Japan, however, showed positive growth at 40.9%, vs. 33.4% in October
The 8.7% drop in imports mainly reflects sharp declines in imports of intermediate goods (November: -8.3%, October: -1.5%) used to produce exports. Capital goods fell 4.1% vs. 19% in October, pointing towards softer fixed investments. Consumer goods imports, however, still showed positive growth of 2.6% in the month, although slowing sharply from double digit levels earlier in the year.

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