Analysts are mixed after Singapore’s September non-oil domestic exports (NODX) numbers were released.
In September, NODX declined by 13.2% y-o-y, making this the 12th consecutive month of contractions seen by the country. That said, the print, which was better than the Bloomberg consensus forecast of -15%, also marked the narrowest decline since April.
On a m-o-m seasonally adjusted basis, NODX rebounded by 11.1%, again better than the Bloomberg consensus estimate of a 3.3% m-o-m growth.
During the month, both electronics and non-electronics exports declined. Electronic NODX declined by 11.6% y-o-y due mainly to integrated circuits (ICs), personal computers (PCs) and parts of PCs, which contracted by 16.2%, 33.2% and 38.9% respectively. Non-electronic NODX fell by 13.6% y-o-y as non-monetary gold (-59.6%), pharmaceuticals (-31.2%) and food preparations (-40.0%) contributed the most to the decline.
NODX to the top markets also declined as a whole although NODX to China, Hong Kong and the US rose. The largest contributors to the NODX decline were Taiwan (-34.9%), Indonesia (-45.2%) and Malaysia (-19.8%).
Economists say…
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OCBC’s chief economist and head of global markets research & strategy Selena Ling noted that Singapore’s NODX for September beat her forecast of a -15.45% y-o-y decline and a 3.2% m-o-m improvement.
“Both electronics and non-electronics exports remained in the doldrums compared to a year ago at -11.6% and -13.6% y-o-y, but improved from August levels. This NODX print suggests some stabilisation from August levels, and could explain why the manufacturing contraction was less severe than expected for the advance 3Q2023 GDP growth estimates out on Oct 13,” says Ling.
However, as NODX has already contacted by 16.1% y-o-y in the first nine months of 2023, Ling notes that the better-than-expected data in September “may not significantly move the needle” for the rest of the year.
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That said, there are several green shoots seen with the improvement of NODX for China, Hong Kong and the US.
Meanwhile, even with a gradual improvement in NODX for the remaining months of the year, Ling estimates that Singapore’s full-year NODX is still likely to contract by 11% y-o-y.
“The current economic-geopolitical landscape remains fragile, given the latest Israel-Hamas conflict which has fuelled concerns of spillovers to the rest of Middle East region and the energy market which could in turn complicate the disinflation trajectory that was supposed to allow central banks to remain on pause mode or pivot to easing down the road,” she adds. “The US’s moves to tighten restrictions on artificial intelligence (AI) chip and chipmaking equipment exports to China in the latest round of crackdown could also potentially derail the bilateral rapprochement efforts, despite market hopes that Biden and Xi will meet in San Francisco for the November Asia-Pacific Economic Cooperation (APEC) meeting.”
“Therefore, it remains prudent to see what happens from here and whether the NODX green shoots will sustain into the new year,” she continues.
UOB’s economists Alvin Liew and Jester Koh are equally cautious, noting that while NODX to some top markets saw a “marked improvement” and recorded positive y-o-y prints, the analysts note that NODX data may be more volatile in nature.
“Several months of positive readings would allow us to be more confident to call for a sustained recovery in exports to these destinations,” they write.
In their outlook statement, however, the economists see a “tentative (but not conclusive) signs of a bottom in the electronics cycle.
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“However, given the still weak external backdrop on tight financial conditions stemming from an elevated interest rate environment, we take a more cautious approach and would require to see further improvements in the coming electronics manufacturing/NODX prints to conclude that the electronics downcycle has indeed bottomed,” write Liew and Koh.
“Even if the electronics downcycle has ‘bottomed’, activity nonetheless remains weak, with negative y-o-y NODX readings likely to persist for the rest of 2023, with a marked recovery likely only towards the middle of 2024,” they add.
Maybank Securities analysts Chua Hak Bin and Brian Lee seem more upbeat following Singapore’s “notably slower” NODX decline in September.
They add that Singapore’s non-oil retained imports of intermediate goods (NORI) has been rising strongly for three consecutive months.
“[This suggests] that manufacturers could be turning more optimistic on demand prospects. Seasonally-adjusted NORI surged by about +21% from the previous month in September (versus +32.4% in August),” note Chua and Lee.
The analysts have kept their full-year NODX forecast at -12% to -9%. Their gross domestic product (GDP) growth forecast has also been kept at 0.8% in 2023 and at 2.2% in 2024.
“We are seeing green shoots of recovery in the electronics cycle, as reinforced by the latest electronics NODX data, as well as improvements to Korea and Taiwan chip exports in September. Singapore’s manufacturing purchasing managers’ index (PMI) turned expansionary and above 50 in September,” they write.
“Exports to China were surprisingly robust this month, with further improvement possible over the coming months due to the low base and a gradual rundown of industrial inventories. The seasonally adjusted NORI and NORX data in September was also encouraging,” they add. “All in, we think NODX could recover to positive growth in the fourth quarter.”
RHB Bank Singapore’s acting group chief economist Barnabas Gan was equally upbeat, as he retained his full-year NODX forecast at -12.5%.
“We expect NODX momentum to recover towards year-end, with annual growth slated to turn positive. This is against Enterprise Singapore’s full-year NODX range outlook of between -9.0% and -10.0% for the year,” he writes.
In his note, Gan cited three reasons why he believes NODX momentum will remain positive going into the end of 2023 and into 2024.
“First, our global assumptions remain unchanged, where we are still overweight global equities, market-weight fixed income and underweight cash,” he says. Economic indicators from the US and Asean suggest an “improving momentum into year’s end, especially in relatively strong US-centric labour, manufacturing, and consumption numbers”. Across Asean, export momentum has bottomed and is on the uptrend quarter-to-date. This is also amid relatively lower unemployment numbers suggesting a tighter labour market.
“Our view for global economic green shoots to turn to trees is materialising nicely, following the gradual recovery in key global manufacturing and trade data. More importantly, despite the escalation of geopolitical tensions, we see little hints of market pessimism; global equity markets saw a quick knee-jerk reaction before short-covering behaviour ensued late last week. Global investors appear to be in risk-taking mode, given the ongoing recovery in global economic momentum,” says Gan.
Second, he believes that key central banks are approaching or are already at their peak rate objectives. “Our peak Fed Funds Rate (FFR) forecast stands at 5.5% - 5.75% at end-year, with a hike potentially as early as November’s meeting. We are also noticing peak rates already seen in key Asean economies; we forecast Bank Negara Malaysia (BNM) to keep its policy rate unchanged at 3.0% for 2023 and 2024, while the balance of risk is for Bank Indonesia (BI) to keep its policy rate unchanged at 5.75% in 2023,” he says.
“In Singapore, we have cited in our recent GDP+MAS report that the Monetary Authority of Singapore (MAS) has seen the end of its tightening cycle after constricting monetary policy for five straight meetings since October 2021. Crucially, the FFR will be cut into 2H2024, likely towards 4Q2024, as our model suggests that US core personal consumption expenditure (PCE) consumer price index (CPI) will only touch 2.0% by then,” he adds.
Third, Gan believes that there are “very early” signs of China’s recovery in 4Q2023. This can be derived from Singapore’s rising NODX to China in September, which came in 26.2% higher y-o-y, and the fastest annual growth in nearly two years.
“We are noticing subtle signs of recovery in Chinese-centric numbers, especially in retail trade, consumer confidence, and exports. Moreover, China’s consumption of essential commodities such as steel and cement has recently seen a pickup in momentum, suggesting that a persistent upward trend in momentum will mean the worst may be over for the Middle Kingdom,” says Gan.
“However, at this juncture, we must caution that the recovery in China’s economic numbers is likely precarious. At the same time, investor sentiment on China remains weak, suggesting further weakness in Chinese yuan against the US dollar (USD,” he adds.
