Economists have downgraded their non-oil domestic exports (NODX) forecasts after Singapore’s May NODX plunged with a contraction of 14.7% y-o-y, significantly worse than Bloomberg’s median estimate of a 7.9% contraction.
On a seasonally adjusted sequential basis, NODX tumbled by 14.6% m-o-m in May, following two preceding months of gains — NODX improved by 18.4% m-o-m in March and by 2.7% m-o-m in April.
The nominal value of NODX moderated for the second consecutive month and to just $14.3 billion in May, down from $15.4 billion in April.
Both electronics and non-electronics segments saw sharp declines in May, with electronics exports falling 27.2% for the month, compared to 23.3% in April, weighed down by integrated circuits, disk media products and parts of integrated circuits, which declined 39.2%, 41.6% and 48.7%, respectively.
Non-electronics exports plunged 10.7% in May compared to its decline of 5.8% in April, worsening on the back of 23.4% and 22.8% drops in specialised machinery and petrochemicals, respectively, and exacerbated by pharmaceuticals, which reversed its 127% surge in April to record a dip of 14%.
“The sharper downturn in NODX, with the broad-based weakness in both electronics and non-electronics performance continued to weigh negatively on manufacturing demand for Singapore,” says UOB Group Research economist Alvin Liew.
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“More negative prints on NODX declines to major export destinations region continued to affirm our cautious outlook and we maintain our call to expect sustained weakness in global demand and that we remain in an electronics downcycle,” he adds.
While NODX to US stayed positive for the fourth straight month, Liew cautions against presuming it will persist especially given the sharp moderation of growth in May. And although China’s rebound of 3.7% in May — reclaiming its position as Singapore’s biggest NODX destination for the month — is a “welcome sign”, he notes that he is uncertain if this growth can be sustained.
“The export outlook remains dire and we expect more pronounced y-o-y NODX contractions for a few more months before improving in the later part of 2H2023,” says Liew, reiterating that May’s NODX plunge adds to the substantial risk that Singapore could enter a technical recession in 1H2023, largely driven by weakness in manufacturing.
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He now expects NODX to contract by 10% in 2023, down from his previous forecast of a 5.5% contraction, at the lower end of the government’s NODX forecast range of “-10.0% to -8.0%”.
Similarly, RHB Bank economist Barnabas Gan says that following the annual contraction in externally facing indicators, Singapore faces a heightened risk of a technical recession in 1H2023.
Noting that empirical NODX data was broadly weaker than expected in the first five months of 2023, he now expects NODX to continue its contraction into 3Q2023 before recovering in 4Q2023. Gan has downgraded his full-year NODX growth forecast to a contraction of 8.0% y-o-y, down from his previous forecast of 0%, against a year-to-date contraction of 14.6%.
“Singapore remains to be an export-oriented economy, thus suggesting that the softness in exports will continue to discourage manufacturing activities; we forecast May’s industrial production to see a similar double-digit contraction rate in May,” he adds.
As such, Gan has pencilled Singapore’s 2Q2023 GDP at a y-o-y contraction of 1.4%, highlighting the risk of a technical recession in 1H2023. He keeps his full-year GDP growth forecast at 2.0%, with the balance of risks tilted to the downside on the back of the continued weakness seen in Singapore’s externally-facing industries.
HSBC Global Research economist Yun Liu notes that while May’s NODX print showed a striking decline in Singapore’s NODX momentum with broad-based weakness, this was largely due to the correction of strong momentum previously.
However, she adds that the momentum is far from seeing a “meaningful recovery”, with trade headwinds not yet dissipating and continuing to weigh on Singapore’s growth.
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Liu says the global electronics cycle has not quite staged a turnaround despite recent optimism on AI-related themes, although “initial green shoots” have begun to emerge in electronics NODX and its shipments to China.
On a 3-month-moving average basis, electronics shipments rose 3.8% q-o-q seasonally adjusted, after nine straight falls. “Granted, the improvement is far from bringing Singapore out of the tech downturn completely, there are at least some initial signs that Singapore’s trade may not be far from bottoming out,” she says.
While Liu says it is “premature” to conclude that China’s demand has rebounded with one month’s data, it is still a meaningful improvement from its earlier double-digit declines. “Although the trade boost from China may be limited, given the nature of China’s consumption-led recovery this round, some support from China’s demand to prevent Singapore’s trade from sliding further is welcome. In addition, favourable base effects will also likely help in 4Q2023.”
Despite external weakness, she believes Singapore stands in a competitive position to benefit from China’s reopening and receive a “punchier economic boost” in 2H203, as supply-side bottlenecks ease.
For Maybank Economics Research analysts Chua Hak Bin and Lee Ju Ye, it remains too early to conclude that China’s reopening will provide a boost to Singapore’s NODX performance for the full year, given that exports to China in May were mainly driven by miscellaneous transactions or gold.
They note that China’s economic recovery is losing momentum as industrial output and retail sales slowed in May.
As such, the Maybank analysts have kept to their earlier 2023 NODX forecast for a contraction of between 6% to 9% with the global manufacturing downturn persisting amid weak external demand.
