By Anuradha Raghu
KUALA LUMPUR, Oct 5 (Reuters) - Malaysia's exports
fell 4.5 percent in August, the biggest year-on-year drop in nearly three years, on weaker demand in the European Union and China, and imports rose less than expected, threatening the growth prospects of the Southeast Asian nation.
A Reuters poll of 16 analysts had forecast exports to dip 2.5 percent year-on-year in line with other Asian countries such as Indonesia, Thailand and Singapore as the euro zone's debt problems and the slowdown in China crimp demand for the region's goods.
"We are not surprised with the further decline in the exports given the continued weak demand from the advanced economies, in particular from electronics," said CIMB economist Lee Heng Guie.
"The softening commodity prices is also one of the culprits that caused the sharp contraction in the exports earnings," he added.
Exports to the European Union plunged 24.4 percent in August from a year ago, while China, one of the country's biggest markets fell 10.6 percent due to weaker demand for electrical and chemical products as well as commodities.
Imports rose 2.8 percent, lower than the 8.2 percent rise, which Lee said likely reflected slowing export orders.
"Overall headwinds remain on the exports side until we see a more convincing turning point coming from the advanced economies. We expect exports to be a drag in the third quarter for Malaysia's GDP," Lee said.
However, Lee said domestic demand is expected to offset any slowdown, and kept his full-year GDP forecast at 5.0 percent, but added that he is likely to cut full-year exports forecast at the lower range of 3-4 percent.
Last week, the Malaysian government unveiled a budget, calling for greater spending and investment to offset the weakness in the external sector. It forecast gross domestic product growth at 4.5 to 5.0 percent for the year and 4.5-5.5 percent in 2013.
Data on Friday showed that Malaysia's trade surplus rose to 7.1 billion ringgit, picking up from July where it slumped to 3.6 billion ringgit, its lowest in more than a decade.
Exports to the U.S remained steady, rising 4.2 percent year-on-year to 5.2 billion ringgit, while exports to Japan rose 15.4 percent due to larger sales of liquefied natural gas as the world's third largest economy moves away from nuclear energy.
($1 = 3.0545 Malaysian ringgit)
(Editing by Sanjeev Miglani)
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Keywords: MALAYSIA ECONOMY/TRADE