KUALA LUMPUR: Kenanga Investment Bank Bhd (KIBB) is cautious about Malaysia's trade outlook despite better-than-expected export growth in May, as regaining positive growth in the coming months will be challenging.
The investment bank said this is mainly due to the high base effect, especially in the third quarter (Q3) of 2023, and expectations of a weaker global trade outlook and lower commodity prices amid the impact of monetary policy tightening in the advanced economies.
Exports fell marginally in May at -0.7 per cent year-on-year (YoY) compared to -17.6 per cent in April, better than KIBB's expectations of -16.4 per cent.
For month-on-month (MoM), exports rebounded sharply to a two-month high of 13.7 per cent in May from -18.9 per cent in April, following the steepest drop in the previous month.
KIBB noted that this also signals that the slowdown in global trade may not be as severe as the firm expected earlier.
Exports were relatively supported by key sectors and trading partners, especially from major Asian markets, KIBB noted.
By sector, exports were supported by a rebound in manufacturing at 1.8 per cent from -15.5 per cent in April and mining at 5.9 per cent from -30.9 per cent in April but partially weighed down by sustained weakness in the agriculture sector at -30.9 per cent in May from -29.2 per cent in April.
Imports contracted -3.3 in May from -11.1 per cent in April for the third straight month amid a high base effect, beating KIBB's expectations at -20.3 per cent and consensus at -11.1 per cent.
On an MoM basis, growth rebounded sharply at 12.6 per cent in May from -10.1 in April, the fastest since June 2022, thanks to higher re-exports of 6.4 per cent in May compared to 3.7 per cent in April and a slowdown in retained imports eased at -6.2 per cent from -15.5 per cent in April.
By category, growth was supported by an expansion in capital at 13.7 per cent in May from 11.3 per cent in April and consumption of goods at 4.5 per cent in May from -1.6 per cent.
Nonetheless, the momentum was weighed down by a sustained contraction in intermediate goods at -12.3 per cent in May from -24.1 in April.
Trade surplus expanded to RM15.4 billion in May from RM12.6 billion in April, beating KIBB's expectations of RM14.9 billion and consensus at RM13.4 billion, as MoM exports rebounded of 13.7 per cent
outpaced imports at 12.6 per cent.
KIBB noted that total trade remained weak, falling by -2.0 per cent in May from -14.6 per cent in April for the third straight month.
The research firm said the 2023 exports forecast was retained at -4.2 per cent amid a cautiously optimistic outlook and a sustained high base effect until September.
"We maintain our 2023 gross domestic product (GDP) growth forecast at 4.7 per cent for now despite expectations of a slowing external trade trend in the near term, as we expect domestic demand to offset the impact of a slowdown in the commodity-related and manufacturing export-oriented sectors," the research firm noted.