December NODX down 7.2% on weak exports to China, S Korea, Taiwan

Singapore

SINGAPORE'S key exports dived past economists' forecasts in December, as the downward spiral in external demand and oil prices continued.

Non-oil domestic exports (NODX) slumped 7.2 per cent year on year last month - more than doubling from the 3.4 per cent slide seen in November - and the trend is expected to continue in the months ahead.

The median estimate, judging by a Bloomberg poll, was for a 4.4 per cent contraction year-on-year and a 0.5 per cent increase from November.

Month-on-month, December's NODX declined 3.1 per cent, although this narrowed from a 3.8 per cent fall in November.

"Exporters are indeed undergoing challenging times," said DBS senior economist Irvin Seah. "Beyond the medium term structural decline, deceleration in China and an uneven recovery in the US are still weighing down on export performance."

"Moreover, a resilient Singapore dollar is another concern," he went on to say, adding that the Sing dollar has held up well against currencies from major export markets in Asia such as Malaysia and China.

China appeared to be a key concern among private-sector economists, who warned that this year's NODX performance would continue to be impacted by easing growth in one of the world's largest economies.

Selena Ling, head of treasury research & strategy at OCBC Bank, expects the NODX performance for this year to clock 0-1 per cent.

"The China slowdown, coupled with oil price slump weighing on regional economies like Malaysia, may continue to be a drag on the regional trade outlook," Ms Ling highlighted.

"We had initially forecast 2016 NODX growth at 2.1 per cent, but even at such conservative expectations, we fear that the risk to outlook still tilts towards the downside, especially in light of the China growth uncertainty and the decline in crude oil prices," said UOB economist Alvin Liew.

Some economists also flagged higher chances of a downward revision for gross domestic product (GDP) growth in Q4 of 2015, although the industrial production (IP) data for December should bring better visibility. Advance estimates from the Ministry of Trade and Industry put Singapore's GDP growth at 2 per cent in 4Q15, up from 1.8 per cent in 3Q15.

"Should a downward revision in 4Q GDP, which seems likely, and 1Q16 GDP weakness bring average growth in these two quarters to less than 0.5 per cent quarter on quarter, we think odds of an April easing would rise, despite the high hurdle placed by the Monetary Authority of Singapore for such a move," said Citi economist Kit Wei Zheng.

The year-on-year decline in December NODX was led by a contraction in both electronics and non-electronics NODX, according to data from trade promotion agency International Enterprise (IE) Singapore. However, non-electronics NODX suffered a bigger drop.

Electronics NODX was nearly flat, edging just marginally lower by 0.3 per cent, dragged down by integrated circuits (-11.3 per cent), parts of PCs (-13 per cent) and disk drives (-22 per cent).

Non-electronics NODX decreased a bigger-than-expected 10.3 per cent, thanks to double-digit drops in petrochemicals (-17.5 per cent), primary chemicals (-41.8 per cent) and civil engineering equipment parts (-43.5 per cent).

"The downside surprise was led by non-electronics, precipitated by the renewed downward pressure on oil prices, which cut into petrochemicals more deeply," wrote Barclays' economists Leong Wai Ho and Angela Hsieh in a report. "The prolonged weakness in rig building persisted, partly on account of the high base in 2014."

With the exception of the US, Japan and Hong Kong, shipments to all top ten NODX markets fell in December.

China, South Korea and Taiwan accounted for the bulk of the NODX decline in December, with exports to China dropping 18.7 per cent, South Korea plunging 25.8 per cent and Taiwan down 17.1 per cent.

On the other hand, shipments to the US provided support, expanding 12.8 per cent. They rose 14.7 per cent for Japan and increased 6.3 per cent for Hong Kong.

One bright spot is that UOB's Mr Liew reckons that the Sing dollar will depreciate to 1.46 against the greenback by 2Q 2016, making Singapore's exports relatively cheaper and more attractive to the US.

Non-oil re-exports (NORX) edged up 0.8 per cent in December, after a 1.6 per cent rise in November, as the pick-up in non-electronics NORX helped to offset the decline in electronics NORX.

Meanwhile, non-oil retained imports of intermediate goods (NORI), an indicator of what's to come in factory output, stood at S$4.4 billion in December, up from S$3.9 billion in November.