Malaysia’s weak trade report lifts odds of BNM rate cut, says ING Economics

Malaysia’s electronic export vigour observed earlier in the year has ended and with continued external headwinds, downside growth risks are rising. This is why Bank Negara Malaysia (BNM) is expected to adopt a 25 basis point policy rate cut at its monetary policy meeting scheduled to be concluded tomorrow, according to the latest research report from ING Economics.

A second consecutive month of negative growth suggests to us that Malaysia's exports are finally feeling the global demand slump after their relative outperformance earlier this year.

A 6.8 percent year-on-year export fall was a big downside surprise for the consensus centred on zero growth. Following on from a 0.8 percent fall in August, this was the weakest print since October 2016.

Although part of the steeper year-on-year export decline is the result of a high base year effect, the second straight month-on-month fall (-4.5 percent followed -7.5 percent in August) reinforced that the weak trend is really getting a grip on exports, the report added.

Just as electronics helped the overall export outperformance earlier this year, electronics are now leading the weakness. Electrical and electronics exports, accounting for about 38 percent of total exports, were down 12 percent y/y in September on the back of a 16 percent fall in semiconductor shipments. Commodities were also a drag, with an 18 percent fall in oil and gas and a 7 percent fall in palm oil exports.

The confluence of weak export growth and firmer import growth produced a narrower trade surplus. At MYR8.3 billion, the trade surplus was the lowest in a year, beating the consensus for a widening to MYR14.2 billion from a surplus of MYR 10.9 billion in the previous month.

Bank Negara Malaysia’s (BNM) Monetary Policy Committee has begun its two-day policy meeting today, the last meeting of the year. The policy decision is expected at around 3 pm local time tomorrow.

"The consensus has yet to come to terms with the need for one more 25 basis point BNM policy rate cut this year (the last cut was in May), which has been our call since August," ING Economics further commented in the report.