Singapore exports may fall further; weigh on GDP: analysts

AFTER a larger-than-expected fall in October, Singapore’s non-oil domestic exports (NODX) are likely to continue to decline at least into the year-end amid weakening external demand, said analysts. As falling exports dampen gross domestic product (GDP) growth, some economists have also lowered their forecasts for the third quarter and into next year.

October’s NODX contracted by a surprise 5.6 per cent year on year from a high year-ago base, reversing from the preceding month’s 3.1 per cent rise. Both electronic and non-electronic exports fell, Enterprise Singapore data showed on Thursday (Nov 17). The decline – the first since November 2020 – was significantly larger than the 1.7 per cent fall forecast by economists in a Bloomberg poll.

Key exports will continue to decline in Q4 2022 and throughout the first half of 2023, as external demand weakens, especially for electronics, said Maybank economists Chua Hak Bin and Lee Ju Ye. They maintained their NODX growth forecast at 5 per cent to 6 per cent for 2022 and -4 per cent to -1 per cent for 2023.

The duo expects Q3 final GDP to be downgraded slightly to 4.2 per cent, from 4.4 per cent in advance estimates, considering softer-than-expected manufacturing growth. They added that the drop in exports may be “an early warning sign” of a potential 2023 recession, albeit a shallow one, due to “offsetting crosscurrents” of global headwinds and reopening tailwinds.

OCBC chief economist Selena Ling also warned that with the combination of rising interest rates, persistently high inflation and ongoing geopolitical uncertainties, “the growth and trade prognosis may remain patchy for the rest of Q4 2022 and into Q1 2023.”

She predicts that NODX will contract again in November and December, depressing full year NODX growth to the lower end of the official 5 to 6 per cent forecast. Considering the stalling growth, OCBC has lowered its 2023 GDP growth forecast to 2 per cent from 2.5 per cent, noting downside risks.

“Many central banks prioritise combating inflation over supporting growth,” which will lead to a “more dramatic slowdown” of growth prospects in 2023, she said.

The OCBC chief economist also noted that the continued decline in electronics exports is reflective of the industry’s challenges globally: faltering demand, US-China trade tensions (given the recent US chip export ban to China and encouragement of semiconductor manufacturing to expand onshore instead), and lingering supply chain problems. 

Oxford Economics senior Asia economist Alex Holmes noted: “Electronics account for around a quarter of domestic exports, meaning Singapore is one of the most exposed in the region to the turn in the semiconductor cycle.

“There is certainly room for further falls (in the external sector), with much of the developed world likely to slip into recession by early 2023.”

UOB senior economist Alvin Liew said that in addition to aggressive monetary policy tightening weighing on global demand, high base effects – November and December 2021’s NODX growths were in excess of 31 per cent year on year – will also contribute to significant contraction in November and December 2022’s readings.

The bank has lowered its 2022 NODX growth forecast to 4 per cent, from 5 per cent previously, setting it below the official forecast range.

On a seasonally-adjusted monthly basis, NODX decreased by 3.7 per cent in October, extending the 3.9 per cent decline in the preceding month.

Barclays economist Brian Tan noted that NODX would likely have increased by 3.6 per cent month on month, seasonally adjusted – “partly recouping” September’s 5.6 per cent drop – if “sharp drops” in volatile non-monetary gold and pharmaceutical were excluded.

However, he added that this would have been “a positive development, but still not enough to point convincingly to stabilisation”.

While they agreed on the gloomy outlook, analysts were mixed on the impact of a possible China reopening.

China alone accounts for 17.6 per cent of Singapore’s total NODX and its reopening “remains a wildcard” that could boost exports, said Chua and Lee. In contrast, Holmes was doubtful that “any revival in Chinese growth would be enough to offset weaker demand”.

Ling said: “Although there are hopes for green shoots in the Chinese economy with the recent relaxation of its Covid-19 strategy and property market measures, the latest October retail sales reading of -0.5 per cent year on year suggest consumer sentiments remain weak.”

NODX to Singapore’s top 10 markets shrank overall in October. Mainland China was a main contributor to the fall, with exports plunging 32 per cent on the year.