June Trade: Better Than Forecast

Last month's model forecasts suggested that exports would be more or least the same levels as in May, if not lower. So it's a pleasant surprise to see trade growth sustained in June instead (log monthly changes):



Year-on-year growth still sucks, but not quite as bad as before (log annual changes):



Given the interval forecasts, June's results don't invalidate my weak recovery/inventory bounce thesis just yet; though in the case of my seasonal adjustment model it's awfully close - seasonally adjusted exports reached RM44.5b, just a hair over the upper 95% interval forecast of RM44.4b. The fact that half the increase in June over May came from electricals and electronics exports certainly suggests the potential for an inventory adjustment phase rather than a true demand-led recovery in exports. Price movements of major commodities were mixed in June, with rubber and palm oil down, and crude oil and tin up:



...which to me means that leakage from China's recovery is getting through, but is being tempered by prices. I have my doubts as to how sustainable China's recovery actually is, given how much appears to be wasted on "unproductive" activities.

Going forward, given the structure of the simple models I've constructed the July model point and interval forecasts will definitely point higher, which paradoxically means the risk of undershooting the forecast is also likely to be higher if what I think is going on is right. On the other hand, if July numbers match or exceed the forecast, then chances are we are seeing a sustained recovery in external demand. That in turn means we have a better than even chance to see positive GDP growth in 3Q - one can hope.

Next month's forecasts:

Seasonally Adjusted Model:

Point forecast:RM43668, Range forecast:RM49080-RM38255

Seasonal Effect Model:

Point forecast:RM45408, Range forecast:RM50891-RM39925

Technical Notes:
June trade data from Matrade. Details on how the models were constructed are here.