Analysts from OCBC, RHB Group Research, UOB and Maybank Securities remain concerned on the outlook of Singapore’s non-oil domestic exports (NODX) even as August’s NODX expanded by 11.4%, surpassing Bloomberg’s forecast of an 8.4% growth y-o-y.
The growth during the month was thanks to the growth in non-electronics, which expanded by 16.9%. Electronics, on the other hand, fell by 4.5% y-o-y due to its high base in 2021.
This is as demand conditions ahead are “likely dampened by ongoing global monetary policy tightening,” says OCBC Bank’s chief economist and head of treasury research & strategy, Selena Ling.
“The World Bank is already warning that global growth is slowing sharply but global core inflation rate could stay [around] 5% in 2023 and global monetary policy tightening could give rise to significant financial stress and trigger a global recession next year,” she adds.
Furthermore, the ongoing uncertainty in the geopolitical landscape – such as the ongoing Russo-Ukrainian war and tensions between the US and China – will continue to dampen global trade and raise the strain on the global economy.
The growth in non-electronic NODX was due mainly to contributions from structures of ships and boats, pharmaceuticals (+68.8%) and food preparations (+44.5%).
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For electronic NODX, integrated circuits (ICs), disk media products and parts of personal computers (PCs) contributed the most to the decline. ICs, disk media products and parts of PCs fell 6.6%, 21.3% and 23.5% y-o-y respectively.
On a m-o-m seasonally adjusted basis, NODX fell by 3.9% in August to $17.1 billion, as both electronics and non-electronics declined.
In absolute level terms, August’s NODX was the lowest since May.
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NODX to the top 10 markets
Singapore’s NODX to the top 10 markets in August rose as a whole with the largest contributors being the US (+60.0%), the EU 27 (+57.3%) and Indonesia (+26.3%).
NODX to the US rose due to the structures of ships and boats, food preparations (+89.9%) and measuring instruments (+53.4%).
NODX to the EU 27 expanded due to a 303.2% surge in pharmaceuticals, a 170.1% y-o-y surge in pharmaceuticals and a 16.9% expansion in specialised machinery.
NODX to Indonesia grew due to non-monetary gold, ICs (+399.1%) and PCs (+99.2%).
At the same time, NODX to China, Taiwan and Hong Kong declined.
NODX to emerging markets expanded by 25.0% in August. This was mainly due to the higher exports to CLMV or Cambodia, Laos, Myanmar and Vietnam (+74.1%), the Middle East (+34.5%) and South Asia (+5.0%).
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NORX growth
In August, non-oil re-exports (NORX) grew by 15.0% y-o-y, easing from the 24.6% growth in July. The growth in NORX during the month was thanks to expansions in both electronics and non-electronics.
On a y-o-y basis, electronic NORX grew by 5.2% due to ICs (+3.9%), diodes & transistors (+34.9%) and telecommunications equipment (+19.8%).
Non-electronic NORX grew by 29.3% in August. This was mainly due to non-monetary gold (+363.1%), electrical machinery (+142.2%) and specialised machinery (+41.1%).
On a m-o-m seasonally adjusted basis, NORX fell by 6.4% in July to $31.4 billion. This time, both electronic and non-electronic NORX fell.
NORX to the top 10 markets as a whole rose in August, with the top three contributors being Indonesia (+50.0%), the US (+28.1%) and Malaysia (+23.1%).
Oil domestic exports
Oil domestic exports grew by 72.2% in August on a y-o-y basis, extending the 66.2% expansion in June.
This was thanks to higher exports to Malaysia (+91.7%), Indonesia (+85.2%) and the EU 27 (+117.6%).
In volume terms, oil domestic exports grew by 15.7% in August.
On a m-o-m seasonally adjusted basis, oil domestic exports fell by 8.6%.
Total trade
Total trade grew by 26.0% in August.
During the month, total exports expanded by 21.8% and total imports grew by 30.9%.
On a m-o-m seasonally adjusted basis, total trade fell by 6.8% to $118.4 billion.
Economists’ estimates
Following the announcement, OCBC’s Ling has kept her NODX growth forecast for 2022 at 6%-8% y-o-y but believes that Singapore’s full-year NODX may come at the lower end of this range. This is given the “rising downside risk attached to the remaining months due to the deteriorating external outlook as flagged last month”.
She has also noted that the soft patch in electronics NODX is not limited to Singapore, adding that there was similar weakness in South Korea, Hong Kong and China.
RHB Group Research’s senior economist Barnabas Gan is expecting Singapore’s NODX momentum to slow in the 2H2022. “This will likely be driven by the softening export demand from east Asia,” he says, noting that NODX to China, Taiwan and Hong Kong fell in August.
Specifically, the economist is estimating that Singapore’s NODX momentum will slow in the 3Q2022 as observed in the data from July and August. This, he says, is likely to be due to the lacklustre electronic export arm.
In his note, Gan has, however, kept his NODX full-year growth outlook for 2022 at 7.0% with the “balance of risks tilted to the upside” on the back of non-electronic NODX, should had so far shouldered the bulk of export growth. “Note that non-electronic NODX rose 16.9% YoY in August, the fastest pace since December 2021,” he says.
However, the weakness seen in August’s electronic outbound shipments “reinforces our view that softer semiconductor demand will likely weigh on Singapore NODX in the months ahead - electronic exports fell 4.5% y-o-y in August, bucking the expansion trend seen in the past 20 months,” he writes.
On NODX to Singapore’s top 10 markets, OCBC Ling’s notes that NODX to China is the softest since February. The second straight month of NODX contractions to China also reinforced concerns about the pace of a slowdown in the Chinese economy, she adds.
Further to her note, Ling also points out that NODX to other North Asian markets such as Hong Kong and Taiwan were also weak.
Maybank analysts Chua Hak Bin and Lee Ju Ye are also maintaining their NODX forecast at 5%-6% for 2022, even if they expect NODX growth to ease and even turn negative in the coming months.
To them, electronics exports are likely to contract further with the easing global growth.
The analysts are also keeping their NODX forecast in 2023 at -2% and +1%
They have kept their GDP growth forecast for 2022 unchanged at 2.8%.
“We see rising risks of a ‘technical recession’ as electronics manufacturing stagnates and contracts in the coming months while trade-related services such as wholesale trade and water transport weaken,” warn Chua and Lee. “The reopening tailwind is dissipating and will not be strong enough to offset the global headwinds from rising interest rates and inflation.”
“Despite the deteriorating growth outlook, we expect the Monetary Authority of Singapore (MAS) to tighten monetary policy in October to counter the intensifying core inflation pressures (+4.8% in July), by re-centring the S$NEER to the prevailing level (currently about 1.5% above mid-point). We are expecting the MAS to maintain the current slope of the appreciation bias, given the deteriorating growth outlook and rising recession risk,” they add.
Finally, UOB’s senior economist Alvin Liew has kept his NODX growth forecast of 5% for 2022 amid growing external concerns. His forecast comes despite a slowdown in NODX growth for the rest of 2022. However, his projection looks “well within reach” thanks to a year-to-date (ytd) gain of 9.9%.
“We are still cautiously positive on the outlook for some segments of manufacturing (and by that extension, their exports) but, we are also cognizant of a potentially much slower electronics performance (as seen in the latest dip in August electronics sector purchasing manager’s index (PMI) and August’s electronics NODX) and weaker demand from North Asian economies that could increasingly weigh on NODX momentum and manufacturing demand (as reflected in NODX data for July and August),” Liew writes.
