May exports growth hits 7-month high but outlook is cloudy

Singapore

SINGAPORE'S export growth hit a seven-month high in May thanks in part to volatile pharmaceutical shipments.

But economists expect this pick-up to be short-lived - in addition to slowing momentum in the electronics sector, trade tensions are weighing on the export outlook.

Non-oil domestic exports (NODX) beat forecasts to jump 15.5 per cent in May over the same month a year ago, according to Enterprise Singapore data out on Monday.

This followed from an 11.8 per cent rise in April and was also significantly better than the 3 per cent increase predicted by economists.

The increase came as non-electronic exports outweighed sliding electronics shipments.

Shipments of electronic products declined by 7.8 per cent, following a 6.9 per cent decrease in the previous month. The fall was led by integrated circuits, PC parts as well as diodes and transistors.

Momentum in the electronics sector has been slowing after last year's boom, when export growth hit a seven-year high. Electronics NODX has fallen for six straight months since December 2017.

Maybank Kim Eng economist Chua Hak Bin pointed to a "puzzling" divergence between electronics exports and production, which might be explained by orders booked in Singapore but produced and shipped from abroad.

While electronics NODX declined by 7.6 per cent in the first four months of 2018, industrial production surged by 17 per cent over the same period, Dr Chua noted.

Meanwhile, non-electronics NODX surged 26.2 per cent in May after a 19.6 per cent increase the previous month. Civil engineering equipment parts, food preparations and pharmaceuticals contributed the most to the growth.

Shipments to five of Singapore's top 10 NODX markets - South Korea, China, Malaysia, Taiwan and Thailand - slipped compared with the same month a year earlier. The top contributors to NODX growth were the European Union, the US and Japan.

Non-oil re-exports - seen as a proxy for the wholesale trade sector - rose 4 per cent in May after an 8.2 per cent rise in April, due to growth in both electronic and non-electronic re-exports.

UOB senior economist Alvin Liew said April and May's strong export growth rates are unlikely to be sustained in the second half of the year.

May's strong showing was due partly to pharmaceutical exports which are notoriously volatile, he noted.

In addition, electronics shipments are likely to continue sliding, given last year's high base.

"Escalating US-China trade tensions, and US trade tensions with the rest of the world, are (also) clouding the outlook for a very trade-dependent Singapore," Mr Liew added.

But DBS senior economist Irvin Seah thinks there might be hope yet for exports to stay robust.

NODX rose 10.3 per cent month-on-month in May, following a 6.3 per cent gain previously, he noted.

If this is sustained, another cyclical upswing could be in the works, especially since growth in the US and euro zone has remained firm.

"Stronger global growth will certainly drive NODX performance although part of those potential gains could be offset by stiffer tariffs and higher interest rates," added Mr Seah.

"It could be a rough ride ahead and things are more likely to turn sideways rather than to continue heading up. It won't be picture perfect, but one can take comfort in the fact that it is certainly a brighter one compared to two years back."