Trade blues in July signal shaky start to second half

Singapore

THE economy got off to a rocky start in the third quarter as July export figures came in worse than expected on a slide in non-electronics shipments. This reversed June's surprise rebound and solidified fears of second-half doldrums with official 2015 growth estimates being pared last week.

Non-oil domestic exports (Nodx), the first significant set of economic data to be released for Q3, slid a worse-than-expected 0.8 per cent last month from the previous year, going by data from trade agency International Enterprise Singapore (IE Singapore) on Monday.

The market consensus forecast had been for a flat reading year-on-year.

Already a disappointment coming on the heels of June's 4.5 per cent climb, July's figure would have been even more dismal if not for a rally in electronics exports, though economists cautioned that this pick-up was likely to be short-lived because of the manufacturing sector's persistent structural problems.

They added that the overall exports decline in July raises the risk of central bank monetary easing, but was likely not enough to tip the scale for the Monetary Authority of Singapore to ease substantially come its October policy meeting. Nodx was up 2.4 per cent from June to July on a seasonally adjusted basis.

The year-on-year Nodx contraction last month came mainly from a 2.1 per cent fall in non-electronics shipments year-on-year, led by typically lumpy exports of structures of ships and boats (-98.3 per cent), printed matter (-51.8 per cent) and primary chemicals (-22.1 per cent), IE Singapore said.

These outweighed a 2.3 per cent rise in electronics exports from the previous year, which came largely on the back of personal computers (+74.3 per cent), telecommunications equipment (+86.6 per cent) and diodes and transistors (+21.7 per cent).

Economists said the rise in electronics exports was one bright spot amid the gloom ahead, but warned that the sector still faced domestic cost pressures and stiff regional competition.

DBS economist Irvin Seah said: "Electronics exports are expected to remain robust with possibly strong orders arising from the year-end festive season demand. However, this is merely a short-term seasonal lift.

"Plainly, it's just a blip and sustainability is questionable. The electronics cluster, and to a large extent, the manufacturing sector, is struggling with daunting structural challenges."

Barclays economist Leong Wai Ho said that although the rise in electronics exports last month was in line with expectations of a cyclical rebound from a solid US economy and a recovery in Europe, there were signs it may run out of steam.

The electronics purchasing managers' index (PMI), a gauge of factory activity, slipped to 49.5 in July after a five-month high of 50.3 in June, "pointing to a loss of momentum", he said. (A PMI reading below 50 indicates contraction and one above 50, expansion.)

ANZ said ongoing consolidation in the IT industry could prompt electronic firms to move their global operations out of Singapore, and that the country's trade performance in the coming months hinged on China's growth and policy developments.

Economists said the gloomy exports figure for July raised the chance that the MAS may ease monetary policy, but the risks were not at tipping point yet. HSBC economist Joseph Incalcaterra, for example, said: "For the MAS to ease policy more substantially, weak growth and sluggish exports alone are not enough. The MAS does not believe that a weaker currency will help growth and export performance. Instead, we would need to see the MAS change its view on the inflationary outlook for 2016, specifically the pass-through of tight labour market conditions to inflation."

IE Singapore cut its Nodx growth forecast for 2015 last week from 1 to 3 per cent to a muted 1 to 2 per cent year on year, citing a softened outlook for regional economies.

Singapore's economy is on track for its slowest growth since 2009; the government has pared its official economic growth forecast for 2015 from 2 to 4 per cent to just 2 to 2.5 per cent.