Even though Singapore’s non-oil domestic exports (NODX) exceeded market expectations in July, economists still see a potential slowdown in the country’s NODX growth in the second half of the year (2H2022).
UOB concerned on weakening demand from China and Japan
UOB’s senior economist Alvin Liew has kept his full-year NODX growth forecast at 5% for 2022, compared to his 12.1% forecast for 2021.
Liew’s forecast comes in line with Enterprise Singapore’s projection that was recently revised upwards to 5% to 6%, he notes.
“Even as we factor a slowdown in NODX growth in 2H (assuming a monthly average increase of around 2% y-o-y for the remaining five months in 2022), coupled with year-to-date (ytd) gain of 9.7%, the full year projection still looks achievable,” says Liew.
His forecast has already taken into consideration the “external risks of the downside growth concerns from North Asian economies, ongoing Russia-Ukraine conflict, tightening monetary policy stance globally, and slower global growth.”
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“We are also concerned about the durability of the rebound in European demand and the upturn in the electronics exports in July,” he adds.
Looking at July’s data, Liew further expressed his concern on the weakening demand from China and Japan as these economies’ growth outlook has weakened. Both countries are part of the top 10 top export destinations for Singapore.
“NODX to China fell by more than a fifth, at -21.3% y-o-y in Jul while, NODX to Japan recorded its first y-o-y decline of 2022,” he says.
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OCBC sees ‘downside risk’ to NODX in 2H2022
OCBC’s Selena Ling, who is the bank’s chief economist and head of its treasury research and strategy department, has also kept her NODX growth forecast of 6% to 8% unchanged for the full-year 2022.
Ling’s unchanged forecast comes even after July’s NODX surpassed her forecast of 6.8% y-o-y.
In July, Singapore’s electronics exports accelerated to a 10.3% y-o-y growth from 4.1% y-o-y in June. Non-electronics exports also grew albeit at a slower pace of 6.1% y-o-y in July compared to June’s 10.0% y-o-y growth.
Ling also notes that decline in NODX to three of Singapore’s top 10 NODX markets in July, China, Japan and Hong Kong. NODX to Thailand stood flat.
“For [these] four markets, the weakness were mostly concentrated in non-electronics exports to China (-22.3%), Japan (+20.6%), Hong Kong (-13.2%) and Thailand (-2.9%), which could be a reflection of the soft patch in domestic demand conditions in China and Hong Kong due to the ongoing Covid restrictions,” says Ling.
In her outlook statement, Ling sees some “downside risk” attached to the remaining months of 2022 due to the “deteriorating external outlook”.
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“Looking ahead, the global semiconductor growth outlook has turned distinctly less upbeat, with Gartner slashing its 2022 worldwide semiconductor revenue growth from its forecast of 13.6% to just 7.4%. This is also a sharp moderation from the 2021 growth of 26.3% as economic conditions are tipped to worsen for the rest of the year,” she says.
Notably, Ling adds that she sees weakness emerging in the semiconductor end markets, especially those exposed to consumer spending.
This, she says, is attributable to the rising inflation and interest rates that are pressuring consumer disposable income, which, in turn, affects spending on electronic products such as personal computers (PCs) and smartphones.
Demand will still remain “resilient” for continued cloud infrastructure investments for data centres, as well as the transition to electric and autonomous vehicles, she says.
“The outlook for pharmaceuticals is also not a shoo-in either given high vaccination and booster rates have been cited by big pharmaceutical companies as dampening their earnings guidance ahead as more countries pivot to endemicity,” she says.
NODX momentum to slow down in 2H2022: RHB
RHB Group Research’s senior economist Barnabas Gan is also keeping his NODX full-year growth outlook unchanged at 7.0% even as he sees a slowdown happening in Singapore’s NODX for the 2H2022.
“[The slowdown] will likely be driven by China’s economic downturn and softening semiconductor sales in Asia-Pacific,” he writes. “Notably, NODX to developed East Asian economies, including China, Hong Kong and Japan, contracted in July, suggesting that the broad economic weakness in China may continue to weigh on Asia’s trade dynamics.”
He adds that recent high-frequency data from China, which includes the country’s industrial production, retail sales and fixed asset investments, have all missed market expectations.
“[This highlights the] downside risks for the world’s second-largest economy,” says Gan.
“In the same vein, risks of global manufacturing demand have magnified of late, given a slowdown in semiconductor sales in Asia-Pacific, which should weigh on Singapore’s manufacturing and NODX momentum in 2H2022,” he adds.
That said, the senior economist sees upside to Singapore’s NODX, as the country’s external sectors are likely to benefit from the “robust” global semiconductor demand, which would help electronics and related specialised machinery shipments.
That said, the economist sees NODX slowing to 4.0% y-o-y in 2H2022 from 1H2022’s 10.1% y-o-y expansion.
Electronics exports likely to soften on weaker demand for chips and lower prices: Maybank Securities
Like their peers, Maybank Securities analysts Chua Hak Bin and Lee Ju Ye have maintained their NODX forecast unchanged for 2022.
The analysts, who have estimated that Singapore’s NODX will expand at a range of 5% to 6%, sees NODX growth to “continue slowing” in the coming months amid the weakening global growth outlook.
“Electronics exports will likely soften on weaker demand for chips and lower prices,” the economists say.
“Average contract prices for dynamic RAM (or DRAM) have fallen by -10.6% in 2Q from a year ago. Non-electronics such as specialised machinery and petrochemicals will be weighed down by a global slowdown,” they add.
Maybank’s Chua and Lee have also kept their GDP growth forecast unchanged at 2.8% for 2022, below the Ministry of Trade and Industry’s (MTI) forecast range of 3%-4%.
“Slower growth in manufacturing and trade-related services sectors including wholesale trade (17.9% of nominal GDP) and water transport (3.5%) will offset the reopening boost in consumer and tourism-related sectors such as air transport (0.3%), accommodation (0.5%), retail trade (1.4%) and F&B services (0.9%) – which cumulatively account for a smaller share of total GDP.”
