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Nikkei Markets

Malaysia June exports fall 3.1% to 4-month low, trade war woes mount

Economists expect central bank may cut rate again to support growth

Malaysia's recent data resonates with a slump in Singapore's exports, now in its fourth consecutive month of decline.   © Reuters

KUALA LUMPUR (Nikkei Markets) -- Malaysia's exports fell in June to its lowest in four months amid weak shipments of electronics and tepid demand from China, strengthening worries that escalating Sino-U.S. tariff tussle is clouding prospects of the trade-reliant nation.

Shipments in June contracted 3.1% to 76.2 billion ringgit ($18.35 billion) from 78.61 billion ringgit in the same month in 2018, according to Statistics Department. In May, exports gained 2.5% year-on-year. Trade surplus widened 71% to 10.3 billion ringgit in June thanks to sharper decline in imports.

Economists said the latest data, which also show a sharp decline in imports of intermediate and capital goods, indicate weak exports in the months ahead that will weigh on economic growth and may prompt a rate cut from the central bank.

"With the global outlook darkening and trade tensions escalating following President Trump's latest threat to impose tariffs on more US imports from China, we believe Bank Negara Malaysia will cut its policy rate," Barclays Economists Brian Tan and Shreya Sodhani wrote in a note to clients.

BNM had cut its key rate by 25 basis points in May after holding it steady for more than a year.

Malaysia's recent data resonates with a slump in Singapore's exports, now in its fourth consecutive month of decline. Singapore reported a 17.3% year-on-year plunge in its non-oil domestic exports in June, the sharpest decline since February 2013.

Other exports powerhouses including South Korea have also reported weak exports. Further, the IHS Markit Manufacturing Purchasing Managers' Index for Southeast Asian countries fell for the second successive month and clocked lower output for the first time in two years.

On Thursday, President Donald Trump announced plans to impose additional 10% tariffs on $300 billion worth of goods from China beginning September 1, even though trade talks between the two countries are due to resume next month.

Shipments of electrical and electronics goods, which account for more than one-third of Malaysia's total exports, declined 6% in June from a year earlier, while refined petroleum product shipments climbed 8.4%.

In terms of markets, exports to Malaysia's largest trading partner China declined 12% year-on-year in June. Exports to Singapore fell 0.9%.

Imports declined 9.2% to 65.9 billion ringgit in June, led by plunge in capital goods. Intermediate goods, such as electronic circuits and automotive parts used in final assembly of computers and vehicles, fell 2.5% in June.

"Weak intermediate and capital spending signal that manufacturers are not optimistic on the future demand for its products attributable to growing external risks especially trade wars, which points to declining activity and deteriorating confidence in the industry," said MIDF Amanah Investment Bank.

Economic growth in the first quarter decelerated to 4.5% year-on-year from 4.7% in the previous quarter as consumers trimmed property purchases, while businesses pared investments. The government is expected to report second-quarter gross domestic product data on August 16.

--Jason Ng

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