Is Malaysia’s electronics strength fading?
It will be difficult for Malaysia’s electronics sector, as well as the overall economy, to defy the global slowdown and this demands greater policy support
| -0.8% |
August export growthYear-on-year |
| Worse than expected | |
Palm oil exports saved the day
Malaysia’s export growth surprisingly swung back to negative territory in August. A 0.8% year-on-year export contraction was below consensus estimates, which not only foresaw growth staying in positive territory but actually accelerating to 2.7% YoY from 1.7% in the preceding month.
Yet, the latest underperformance isn’t a complete shocker -- denominated in local currency (Malaysian ringgit, or MYR), export growth has been flipping between low single-digit positives and negatives this year.
While they were a source of Malaysia’s export strength for much of this year, electrical and electronics exports were a source of weak headline growth in August. There was a sharp slump in these exports to -7.4% YoY from +4.5% in July. Undoubtedly, much of this was from semiconductors (-5.9% vs. +10.3% in July). Oil and related exports continued to be weak (-12% vs. -6.5% in July), though other commodity exports like palm oil, with a 17% surge, saved the day.
Is electronics strength fading?
Malaysia’s semiconductor exports have performed far better this year in the face of a global technology slump. Heavy-weights in the field, Korea and Singapore, have seen their exports plunge as much as 30% YoY in recent months.
The year-to-date performance puts Malaysia closer to Taiwan than other Asian exporters, though part of the recent improvement in Taiwan’s electronics exports was seasonal, a boost from new smartphone launches in summer. If anything, we sense Malaysia’s relative strength as a move up the electronics value chain. And if so, the outperformance should continue even if recent strength wears off in an entrenched global downturn.
Asian semiconductor exports
Strong external payments
Import growth of -12.5% YoY in August was far weaker than expected (consensus -8.0) and it reflects weak domestic demand. But a narrower August trade surplus of MYR 10 billion than July's MYR 14.3 billion was in line with consensus.
The MYR 92.5 billion trade surplus in the first eight months of 2019 was $20.6 billion wider than a year ago, which, in turn, will translate to a wider current account surplus. Our forecast for a 2019 current surplus equivalent to 2.8% of GDP, up from 2.1% in 2018, remains on track. Furthermore, a wider current surplus also means a continued positive net trade contribution to GDP growth this year, supporting it at the 4.7% rate of 2018, at least.
More policy support
However, today’s weak export data does reinforce the view that it’s going to be difficult for the economy to continue to outperform, as global headwinds are getting stronger and this demands greater policy support.
While we maintain our view of one more 25 basis point rate cut by Bank Negara Malaysia in the current quarter, we also expect some policy support coming through in the 2020 Budget to be announced a week from today (11 October).
Download
Download article
7 October 2019
Good MornING Asia - 7 October 2019 This bundle contains 4 articles"THINK Outside" is a collection of specially commissioned content from third-party sources, such as economic think-tanks and academic institutions, that ING deems reliable and from non-research departments within ING. ING Bank N.V. ("ING") uses these sources to expand the range of opinions you can find on the THINK website. Some of these sources are not the property of or managed by ING, and therefore ING cannot always guarantee the correctness, completeness, actuality and quality of such sources, nor the availability at any given time of the data and information provided, and ING cannot accept any liability in this respect, insofar as this is permissible pursuant to the applicable laws and regulations.
This publication does not necessarily reflect the ING house view. This publication has been prepared solely for information purposes without regard to any particular user's investment objectives, financial situation, or means. The information in the publication is not an investment recommendation and it is not investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Reasonable care has been taken to ensure that this publication is not untrue or misleading when published, but ING does not represent that it is accurate or complete. ING does not accept any liability for any direct, indirect or consequential loss arising from any use of this publication. Unless otherwise stated, any views, forecasts, or estimates are solely those of the author(s), as of the date of the publication and are subject to change without notice.
The distribution of this publication may be restricted by law or regulation in different jurisdictions and persons into whose possession this publication comes should inform themselves about, and observe, such restrictions.
Copyright and database rights protection exists in this report and it may not be reproduced, distributed or published by any person for any purpose without the prior express consent of ING. All rights are reserved.
ING Bank N.V. is authorised by the Dutch Central Bank and supervised by the European Central Bank (ECB), the Dutch Central Bank (DNB) and the Dutch Authority for the Financial Markets (AFM). ING Bank N.V. is incorporated in the Netherlands (Trade Register no. 33031431 Amsterdam).