Malaysia: February exports surprised on the upside

Robust Demand For Manufactured And Agriculture Goods In February

Despite the Movement Control Order (MCO) and a shorter working month, Malaysia’s exports extended their expansion substantially to 17.6% y/y in February (from +6.6% in January). This marked the biggest gain since October 2018 and surpassed ours (+6.0%) and Bloomberg (+7.1%) estimates. On a m/m basis, exports contracted at a more moderate pace by 2.3% (January: -6.4% m/m). This brought a year-to-date (YTD) increase in exports to 11.7% y/y in the first two months of 2021 (January-February 2020: +2.9%).

February’s export growth was propelled by robust shipments of manufactured goods (February: +20.1%, January: +11.7%) and agriculture goods (February: +9.7%, January: -7.3%). The contraction in mining exports tapered to a single-digit decline for the first time in 11 months (February: -7.8%, January: -31.0%), while year-ago low base effects also lent some support.

Manufactured goods that witnessed persistent substantial improvement last month were electrical & electronics products (E&E, February: +24.4%, January: +12.0%), rubber products (February: +188.7%, January: +187.4%), chemicals & chemical products (February: +20.3%, January: +10.6%), and manufactures of metal (February: +27.0%, January: +19.9%). Exports of refined petroleum products rebounded by +32.1% (January: -32.4%) after contracted for 11 straight months.

Agriculture goods were buoyed mainly by higher shipments of palm oil and palm oil-based products (February: +10.7%, January: -10.9%). The smaller decline in mining goods was helped by a narrower drop in overseas shipments of both crude oil (February: -24.3%, January: -31.9%) and liquefied natural gas (LNG, February: -17.0%, January: -40.0%).

Almost all export markets posted positive expansions led by China, the US, the EU, Singapore, and Hong Kong. Demand from China has improved for the 11th consecutive month by 35.8% in February (January: +26.0%) as a result of higher exports of E&E products, petroleum products and LNG. Malaysia’s exports to the US also recorded the ninth straight month of expansion (February: +26.0%, January: +18.4%) which was boosted by increased demand for rubber products. The sixth month of rising in exports to the EU (February: +15.3%, January: +11.4%) was also due to higher shipments of rubber products.

Import Growth Nears 3-Year High

Similar to exports, overall imports posted the largest rise since June 2018 by 12.7% y/y last month (January: +1.3%). This came after imports of capital goods staged a strong rebound for the first time in eight months by 39.0% (January: -5.4%) particularly for parts of machinery and mechanical appliances; as well as imports of consumption goods which rose by 17.6% (January: +1.3%), especially furniture. Meanwhile, imports of intermediate goods contracted marginally by 0.2% (January: +1.4%) due to lower imports of electrical machinery, equipment and parts. YTD, overall imports rose 6.6% in the first two months of 2021 (January-February 2020: +3.4%).

As exports increased at a faster pace than imports, the trade surplus widened by 41.6% y/y to RM17.9 billion in February (January: +38.0% to RM16.6 billion). This brought YTD trade surplus higher by 39.8% to RM34.5 billion in January-February 2021 (January-February 2020: +0.5% to RM24.7 billion).

Revising 2021 Export Growth Forecast Higher

Given the surprise upside in February exports, signs of firmer global economic recovery and potential gains from trade diversion and diversification (see link for details), we revise our export growth forecast to +15.0% (from +4.0% previously; 2020: -1.4%). The giant tanker at the Suez Canal has reportedly been refloated (29 March).

A sharp cyclical rebound in China’s economic growth and growing optimism surrounding the US economic outlook, alongside moderate recoveries across Asia will help drive the recovery in global demand this year. The technology upcycles and acceleration in digital transformation should continue to boost demand for Malaysia’s E&E products alongside other rubber products.

The country’s diversified export base and robust trade linkages also play an important role in sustaining the gains in trade amid lingering uncertainties surrounding the pandemic and geopolitical tensions. An acceleration in global inoculation programs and the reopening of international borders are potential catalysts for the rosier export outlook.