Malaysia July exports tumble the most in 15 months, raising prospects of rate cut

KUALA LUMPUR (REUTERS) - Malaysia's exports suffered their biggest slump in 15 months in July, signaling persistent pressure on the export-reliant economy and raising the prospect of further monetary easing before year-end.

Exports from the Southeast Asian economy declined 5.3 per cent in July from a year earlier, data from the International Trade and Industry Ministry showed on Wednesday (Sept 7), a sharp contrast to economists' estimates of a 2.5 per cent annual rise. In June, exports grew 3.4 percent.

Compounding matters were signs of tepid domestic demand, with imports falling 4.8 per cent on-year, sharply down from the previous month's 8.3 per cent rise.

The volatility in the monthly data may keep the central bank from cutting rates again at its policy meeting later on Wednesday, following a surprise 25-basis-point easing to 3.00 per cent in July.

A Reuters poll forecast Bank Negara Malaysia to stay its hand this afternoon, but some analysts note growing risks of a further easing before year-end, especially given the soft growth trend and weak sales to key trading partner China.

Malaysia, the world's second-largest producer of palm oil and a major exporter of natural rubber, saw exports of both commodities drop 9.6 per cent and 43.9 per cent in July, respectively.

Annual exports of liquefied natural gas also tumbled 25 per cent.

A weak spot was China, the country's biggest trading partner. Exports to the world's second-biggest economy fell 22.3 per cent in July, on lower shipments of electrical and electronic products, petroleum products and natural rubber.

Brian Tan, an economist with Nomura, said a rate cut was more likely later this year at the policy meeting in November.

"With the volatility between this month and the previous month's numbers, it's not clear whether this is a structural trend. It's something we'll have to monitor before we come to any conclusions about the country's growth trajectory," he said.

HSBC economists are not ruling out a cut on Wednesday, especially as economic growth has slowed for five straight quarters to the end of June 2016.

In the second quarter, Malaysia clocked up the slowest annual growth in seven years.

Exports to the US rose 4.1 per cent, driven by demand for optical and scientific equipment, and palm oil and palm-based products.

July's trade surplus narrowed to RM1.9 billion (S$629.8 million) compared to RM5.5 billion in June.

"Data released since that GDP report, while scant, do not suggest a turnaround is imminent," HSBC economist Su Sian Lim said in a note.