Malaysia Weekly: Upside Surprise in December Exports Reinforces Odds of Early Rate Normalization

December exports surprise on the upside, beating consensus expectations, but in-line with our own — Exports jumped by 18.7% YoY in December (Nov: -3.3%), outperforming market expectations (12.5% YoY), but in-line with our expectations (18.6%). The out-performance was not due to favourable base effects alone. After X-12 seasonal adjustment, exports rose 10.0% MoM, a sharp turnaround from its 5.4% fall in November.
…led by double digit YoY jumps in 7 out of the 10 major export categories — Crude Petroleum exports leapt by 77.2% YoY in December (Nov: -16.1%), partly on a low base, with crude prices almost doubling between Dec-08 (41.05US$/bbl) and Dec-09 (73.94US$/bbl). Similarly, double-digit YoY increases were seen in exports of Electrical & Electronic Products, Chemicals/Chemical Products, Refined Petroleum Products, Machinery Appliances, Optical/Scientific Equipment and Manufactures of Metals. On a MoM SA basis, Electrical and Electronic exports rose by 5.21%, partially reversing a 9.88% decline in November. Exports of Liquefied Natural Gas and Wood Products saw shallower declines while the only category to worsen was Palm Oil exports, which dipped slightly by 0.2% YoY ( Nov: 20.5%YoY).
Sharp jump in Asia-bound exports, especially to China — Exports to China Singapore, and Thailand rose sharply YoY. Exports decline to the US eased (Dec: -0.5%, Nov: -13.1%), while exports to Japan continued to fall.
Imports also outperformed expectations; trade surplus widened — Imports rose by 23.3% YoY, accelerating from the 2.3% increase in November, led by larger increases in imports of Intermediate goods (Dec: 18.8%, Nov: -4.4%), followed by Consumer goods (6.7%, Nov: 2.9%) and Capital goods (Dec: 25.3%, Nov: 23.3%). With sequential growth in exports outperforming imports, the trade surplus widened in December to RM12.10bn from RM8.88bn in November.
December exports reaffirm BNM’s confidence on growth outlook; reinforcing likelihood of rate normalization in 1H10 — The better-than-expected export performance has reinforced cyclical catch-up theme and explains Bank Negara’s recent confidence on the growth outlook. Together with the less dovish 26 January MPC statement and concerns over financial imbalances, we reiterate our expectation of a 25bps hike in the OPR at the March MPC meeting, followed by another 25bps. If and when risk aversion subsides, growth data supporting the notion of a cyclical catch up vis-à-vis the region should be supportive of near-term MYR outperformance.

Download Citi Research’s Malaysia Macro Weekly (08 Feb 2010)

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