06/10/2012 (The Star) - The country's exports for the month of August declined 4.5% year-on-year to RM55.97bil due to weak demand for electrical and electronic (E&E) products and palm oil.

The drop in exports was higher than the 1.7% median expectations of economists and the worst in almost three years. Exports for July was revised to a 2.9% decline from a 1.9% drop.

According to data released by the Statistics Department, shipments of electrical and electronic products fell 5.2% to RM19.13bil with lower demand from China, Germany, France, India and Japan.

However, E&E shipments to the United States, Taiwan and Singapore expanded.

Meanwhile, exports of agricultural goods, including palm oil and crude rubber, slumped 25.4% to RM6.3bil while higher liquefied natural gas as well as refined petroleum products exports help boost mining exports by 16.5% to RM11.21bil.

Alliance Investment Bank Bhd chief economist Manokaran Mottain said gross domestic product was expected to slow further to around 4.5% in the third quarter 2012 on a drag from exports.

“Gross exports fell for the second straight month in August, declining by 4.5% on lower demand from the euro area, China and India. This was way below market consensus forecast as well as our house estimate. Going forward, global trade would continue to be dragged by the external headwinds and we see no turnaround at least until the year-end,” he said.

He said this would support its earlier assumption of a softer growth for Malaysia in the second half-year, while it still maintains a GDP forecast of 4.7% for the full year of 2012.

“Overall, we were right when we said the uptrend from May and June was unlikely to be sustained going forward, especially given the persistent global weakness from Euro debt crisis and slowing Chinese economy. Recent purchasing managers' index (PMI) data had been consistent with the current trend,” he said.

Citigroup Inc economist Kit Wei Zheng in a report said imports continued to indicate relatively resilient domestic demand, with the dichotomy between relatively resilient domestic demand and weak exports remains evident in the trade data.

Imports for August increased by 2.8% to RM48.88bil mainly due to increase in imports of capital goods, by RM856.9mil. But when compared with July, the imports fell 10.3% from RM54.50bil.

“Seasonally-adjusted July to August exports levels are 5.8% below the second quarter average and the fall in intermediate imports to 6.4% below second quarter levels continues to suggest export weakness ahead, though the broad sequential stability in August headline and E&E exports provides comfort that exports are not in freefall,” he said. Overall he still maintains a forecast of 5% GDP growth for the country. “With exports weakening but nowhere near a free fall even as domestic demand remains relatively resilient, the data should not alter the monetary policy committee's guidance on the stable interest rate outlook.”

We continue to expect Bank Negara to keep rates on hold for the rest of 2012,” he said.