07/08/2012 (The Star) - Malaysia's exports and factory output growth rates probably moderated in June after unexpectedly strong data in May, as the global economic outlook becomes more challenging with China's economy slowing.

June's exports are projected to have risen 3.3% year-on-year, compared to a 6.7% gain in May and a 0.1% decline in April, according to a Reuters poll of 17 economists.

In their view, imports may have expanded 8.6% in June, compared to 16.2% the previous month.

In the poll, Malaysia's trade balance for June was estimated at RM5.2bil compared with May's RM4.6bil. Factory output growth, as measured by the Industrial Production Index (IPI), may have slowed to 4.5% year-on-year in June from 7.6% in May.

Economists said demand from China probably weakened even though exports to Japan remain healthy, while Malaysia's imports were seen supported by healthy consumer demand and government spending ahead of general election widely expected this year.

“Export growth remains weighed by lacklustre demand for manufactured goods, especially in E&E (electrical and electronic products), as well as the impact from the moderation seen in commodity prices,” said OCBC economist Gundy Cahyadi.

“The volume of key commodity exports, including palm oil, has fallen almost to the level seen before the commodity boom in 2009,” he added.

Crude palm oil prices currently are about 3% lower than a year ago while the export volume of Malaysia's palm oil products in June rose 2% year-on-year to 1.46 million tonnes, according to cargo surveyor Societe Generale de Surveillance. On a month-on-month basis, shipments declined 9.7% from May.

Malaysia's factory output growth the IPI measures manufacturing, electricity and mining output likely slowed in line with the moderation in exports. Electrical and electronic manufacturing may have softened while car manufacturing was resilient. Production of both passenger and commercial motor vehicles in Malaysia's largely domesticgeared auto industry rose 15% year-on-year in June.

Even if the IPI numbers are weak, this is unlikely to spur Malaysia's central bank to cut rates when at its next policy meeting on Sept 6. Most economists don't expect any rate change until 2013.

In coming months, Malaysia's exports were expected to soften as the purchasing managers' indexes of key export markets and the global electronics cycle indicate declining demand, said DBS economist Irvin Seah.

“External headwinds are picking up,” he said. “Even Asia's demand, with China's recent growth being subpar, is slowing.”

“That implies weaker export and industrial performance in the months to come,” Seah said.

Thailand's exports surprisingly fell in June as slower demand from Europe and a sharp drop in rice shipments outweighed a recovery in manufacturing after devastating floods last year. Indonesia's exports saw their biggest drop in nearly three years on softer Chinese demand but Singapore reported betterthanexpected export data. - Reuters