Malaysia’s exports remained sluggish in Jun, contracting for the fourth straight month and by a double-digit pace for the second time this year at 14.1% y/y (May: -0.9%). The decline came in worse than our expectation (-11.5%) but in line with Bloomberg consensus (-14.0%). Imports also dropped for four months in a row by a double-digit rate of 18.9% (May: -3.7%), sharply below our estimate (11.0%) and Bloomberg consensus (-16.5%). This led to a larger trade surplus of MYR25.8bn (May: +MYR15.7bn). 

In 2Q23, exports shrank for the first time in 11 quarters by 11.1% y/y (1Q23: +3.0%) while imports tumbled for the first time in nine quarters by 11.5% (1Q23: +3.4%), leaving a cumulative trade surplus of MYR54.1bn (1Q23: +MYR64.4bn). This is expected to translate into a smaller current account surplus of MYR3.5bn last quarter (1Q23: +MYR4.3bn). Actual 2Q23 current account data will be released on 11 Aug. 

We maintain our view that the export contraction trend will likely persist for the greater part of 2H23 as a result of the unfavourable base effects, subdued global demand and easing global commodity prices. Tighter international financial conditions, volatile currency and escalating geopolitical risks add further downside risks to the near-term trade outlook. The 4.5% year-to-date decline also suggests that our 2023 full-year export forecast of -7.0% remains valid (BNM est: +1.5%, 2022: +24.9%).