Analysts are expecting to see a slowdown in Singapore’s non-oil domestic exports (NODX) for the first half of the year after December 2022’s NODX slumped for a fifth straight month.
On Jan 17, Enterprise Singapore (EnterpriseSG) released Singapore’s NODX performance for the month of December last year, which saw a y-o-y decrease of 20.6% — its highest decline since February 2013.
This came in below the Bloomberg consensus forecast of a 16.0% contraction, with electronics and non-electronics exports both underperforming. On a seasonally adjusted m-o-m basis, NODX fell by 3.3% from November 2022, coming in again below the Bloomberg consensus forecast of 0.2% growth.
“Singapore’s NODX figures again came in worse than our pessimistic forecast, sending a strong signal that external demand continued to be weighed down by tightening central bank policies globally and its negative impact on externally oriented economies,” says UOB senior economist Alvin Liew.
Liew highlights that this is the fifth consecutive m-o-m decline for NODX, and the longest consecutive period of declines since end-2008 and early-2009. “The continued decline in nominal values of NODX since the second half of 2022 is a worrying concern, to the extent
that the average value of NODX per month in the 2H2022 period came to just $15.9 billion.”
This figure is 10.7% lower than the monthly average of $17.7 billion in the first half of 2022, although only slightly lower at 1.2% below the average of $16.1 billion in 2021.
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November 2022’s NODX contraction was also revised lower to 14.7% y-o-y, bringing 2022’s full-year NODX growth to 3.5%, which is the slowest annual growth since 2019 compared to growths of 12.2% in 2021 and 4.4% in 2020.
For the month of December 2022, electronics exports fell by 17.9% y-o-y due to weakness in integrated circuits and disk media products, while non-electronics exports also declined by 21.3% y-o-y due to contractions in non-monetary gold, specialised machinery and primary chemicals.
“The weakness was broad-based, with electronics, pharmaceuticals and petrochemicals all posting steep contractions. Electronics products saw mixed trends with diodes and transistors plus PCs managing to post decent growth, while all other subcategories showed steep falls,” says ING Philippines’ senior economist Nicholas Mapa.
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Notably, NODX to eight of the top 10 NODX markets fell on y-o-y basis in December with the exception of South Korea and Japan. NODX decreased mainly to China by 31.8%, Hong Kong by 34.6%, Indonesia by 35.4% and Malaysia by 15.7%, which reinforced the global and regional demand slowdown theme, says OCBC’s chief economist Selena Ling.
“The Covid-19 situation in China, particularly the caution amid the reopening announcement in early December, likely weighed on economic activities, which is reflected in the dampened NODX of specialised machinery, pharmaceuticals and primary chemicals to China,” she adds.
According to her, it was a “similar story” for Hong Kong which saw specific weakness in integrated circuits, specialised machinery and electrical machinery, whereas the decline in NODX to Indonesia was attributable to non-monetary gold, petrochemicals and telecommunications equipment.
Ling notes that major economies were not immune either, with NODX to US sinking into the red by 1.9% y-o-y while NODX to the EU27 market also featured a decline of 3.7% y-o-y in December.
No consensus on full-year forecasts
With global trade expected to slow further in 2023, ING’s Mapa says that stalling NODX could become a trend for the near future. “Slowing global trade and the impact on Singapore's trade sector is expected to weigh on Singapore’s overall growth outlook in 2023. The reopening of China’s economy could however partially offset fading demand from the US and Europe, although we are still unsure of when we could start to see the positive impact from China's relaxation of its Covid measures,” he says.
Mapa adds that despite the uncertainties about China's reopening, the slowdown in economic growth for Singapore's other major trade destination countries will likely result in NODX posting steep falls for at least the first half of this year, forcing overall growth to settle at around 2.5% y-o-y for 2023.
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OCBC’s Ling agrees, and says that 1Q2023 NODX outlook remains “grim” due to rising global recession fears. “Although China’s reopening came a bit earlier than expected, its post-exit Covid-19 wave is likely to dampen near-term growth prospects before paving the way for a stronger recovery in subsequent quarters,” she says.
China reported slightly better-than-expected 4Q2022 GDP growth of 0% on a q-o-q seasonally adjusted basis, or growth of 2.9% y-o-y. However, December retail sales remained weak suggesting that poor consumption sentiments, says Ling.
“Until the global central banks including the US Federal Reserve clearly pivot to a rate pause and the prevailing recession worries abate, global demand conditions are likely to continue to be weighed down in 1Q2023,” she reasons.
Ling’s forecast is for Singapore’s 1Q2023 NODX to continue to contract by up to 17% y-o-y given the high base set in the corresponding quarter last year. For the full-year 2023, she is forecasting that NODX could contract by up to 3% y-o-y, assuming some stabilisation in 2H2023.
According to UOB’s Liew, the worsening electronics performance and increasingly weak demand from major export destinations, especially China and the Asean region, will continue to weigh negatively on NODX momentum and manufacturing demand.
He expects that global demand will head towards a downturn on the back of more aggressive monetary policy tightening and worries about economic recessions in the developed markets. “The weaker regional demand in November 2022’s NODX added to this downbeat outlook narrative. It should also be noted that the high base effect will continue to work against the NODX going into early 2023,” he adds.
Liew is expecting to see a few more months of y-o-y declines in NODX for 1H2023 before factoring an improvement in the second half of the year, and is expecting a full year NODX contraction of 5.5% in 2023.
Although RHB Group senior economist Barnabas Gan says that Singapore’s NODX situation could deteriorate before improving, he anticipates that NODX will stage a comeback in the second half of 2023. “On a y-o-y basis, we expect NODX to contract further in 1H2023 before staging a rebound in 2H2023,” he says.
On top of this, Gan notes that momentum may have troughed in 4Q2022 on the back of improving NODX pace to China, EU and South Korea on both nominal and real terms on a m-o-m seasonally adjusted basis. He believes that improving trade momentum in December 2022 has reinforced his view that market fears over a global recession are “overdone”.
“Nonetheless, we maintain our outlook for Singapore’s gross domestic product (GDP) momentum to decline further in 1H2023 before stabilising in 2H2023, as indicated by our proprietary leading GDP index model,” says Gan.
Given the ongoing global economic headwinds, he is continuing to adopt a “cautious outlook” on Singapore’s trade prognosis, noting the lack of clarity over the pace of China’s reopening and loosening of its pandemic restrictions, coupled with the high-base NODX levels in 2022.
Notwithstanding the improving momentum in NODX to key export destinations in December 2022, Gan says the fact is that the decline in y-o-y terms has been more “pronounced” than expected. With incoming data proving weaker than anticipated, he says that there are downside risks to his current NODX growth forecast of 1.0% in 2023.
