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August export contraction points further to technical recession

Drop of 8.4% sharper than expected; but some analysts see SG50 celebrations boosting Q3 services sector and GE lifting domestic spending

Quay cranes servicing a container ship berthed at the PSA Pasir Panjang container terminal.


AUGUST'S non-oil domestic exports fell more than expected - and the underperformance is the latest in a string of economic indicators pointing to Singapore as being on course for a technical recession.

While trade numbers are no longer as closely linked to Singapore's GDP as they once were, with its economy shifting from goods to services exports, the latest drop in the NODX was way too big not to be telling, according to Michael Wan, an economist at Credit Suisse.

"Today's NODX print certainly raises the risk of a weaker than expected August industrial production print," he said on Thursday in response to the release of the trade figures by International Enterprise Singapore, the trade promotion agency.

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Year on year, the NODX tumbled 8.4 per cent last month when private-sector economists were looking to a 3.5 per cent drop. And this came after a revised 0.7 - against the original 0.8 - per cent dip in July.

"This marks the second consecutive year-on-year contraction and the fourth contraction print since the start of 2015," Barnabas Gan of OCBC Bank noted in a brief report.

"The lacklustre NODX print joins other disappointing Singapore economic prints since the start of the third quarter, including industrial production, retail sales and manufacturing PMI," he added.

Noting that the risk of a technical recession has "increased significantly", OCBC sees third-quarter GDP slipping by a seasonally-adjusted 0.4 per cent, quarter on quarter.

A technical recession happens when GDP falls for two straight quarters.

Month on month, the NODX fell by a seasonally-adjusted 4.6 per cent in August - a reversal of the 2.5 per cent rise in July and 0.2 per cent increase that private-sector economists had projected.

Calling the month-on-month decline "the ugliest part of the data set", DBS's Irvin Seah said that it not only wiped out the modest gain from the previous month, "it essentially tipped the economy even closer to a technical recession".

"The economy is on the verge of a technical recession," he said. "It contracted by a seasonally-adjusted 4.0 per cent quarter on quarter in the second quarter, led by an 18.3 per cent drop in manufacturing output."

Mr Seah said that the manufacturing sector is already in recession, having shrunk for three consecutive quarters in year-on-year terms - and for three out of the past five quarters on a sequential basis.

Added BNP Paribas's Philip McNicholas: "Singapore's latest NODX reading will further encourage mounting fears of a technical recession."

The French bank estimated that in US dollars term, the NODX dropped 18.4 per cent year on year in August.

But not everyone sees a technical recession in the making.

"While it cannot be ruled out, our base case has the economy avoiding a technical recession in the third quarter, as the services sector should be supported by Singapore's 50th anniversary celebration and domestic spending should be bolstered by the general election," Nomura's Euben Paracuelles and Brian Tan said in a report.

"Non-oil re-exports, which are linked to the transport and storage services sector, continued to rise by 2.6 per cent year on year in August," they noted.

Kit Wei Zheng of Citigroup also found the weak NODX numbers "not conclusive" in pointing to a technical recession. "The pick-up in July-August NORI (non-oil retained imports of intermediate goods) levels may suggest a pick-up in August industrial production," he said.

The NORI increased by S$1.5 billion from S$3.6 billion in July to nearly S$5.2 billion in August.

But there's little doubt that the NODX's weakness last month was broad-based across products and markets.

Both the electronics and non-electronics NODX fell this time round, by 2.7 and 10.6 per cent respectively. In July, the electronics NODX was up 2.5 per cent, while the non-electronics NODX dipped 2.0 per cent.

Except for the US (up 8.8 per cent), Thailand (4.6 per cent) and Hong Kong (2.3 per cent), NODX shipments to the rest of the top 10 markets slipped last month, led by South Korea (down 28.6 per cent), Taiwan (22.4 per cent) and the EU (9.0 per cent).

NODX exports to China declined 8.2 per cent, extending the 1.6 per cent drop in July.