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Pharma holds up July exports but trade war a threat

NODX up 11.8% on doubling of pharma exports; economists note recent numbers skewed by just one sector


THE seasonally volatile pharmaceutical sector supported Singapore's non-oil domestic exports (NODX) in July, but economists warned that a US-China trade war could soon bite.

NODX grew by 11.8 per cent year on year in July, up from 0.8 per cent the month before, according to data from Enterprise Singapore on Friday. The showing beat a market consensus forecast of 7.4 per cent growth.

And it came even as electronics shipments continued to shrink, contracting by 3.8 per cent in July - albeit an improvement on the 8.6 per cent decline clocked the previous month.

But non-electronic exports offset electronics' stint in the doldrums, posting a rise of 18.8 per cent on the heels of a 4.5 per cent increase in the month before. The jump came on eye-watering 109.2 per cent growth in pharmaceutical exports, followed by food preparations and primary chemicals.

"However, pharmaceuticals output and exports can be rather volatile depending on the turnaround for each production cycle, so it is unclear how long this current uptick will sustain beyond the immediate few months ahead," noted Selena Ling, head of treasury research and strategy at OCBC Bank.

Calling the month's numbers "a useful start" to the third quarter and "a nice statistical bounce from the weakness shown in June", Robert Carnell, ING Asia-Pacific's chief economist and research head, shared Ms Ling's concern over the pharmaceutical sector's outsized clout.

"It's not that we have anything against pharmaceuticals," he said in a note. "But for some time now, the NODX figures seem to be finding their support in extraordinary strength in usually just one aspect of the export figures, and that makes us nervous that the headline is vulnerable to a downward correction."

Six of the top 10 export markets saw growth in July, up from four in the month before. Exports to Hong Kong, South Korea and Thailand fell, with growth fuelled instead by the United States, Japan and Indonesia. Exports to the major mainland Chinese market were flat, against a prior 15.8 per cent decrease, as growth in non-electronic shipments balanced out the slide in electronics. Ms Ling said that the drop in electronics "could be reflective of some spillover effects from the US-Sino trade spat".

Economist Tan Khay Boon, senior lecturer at SIM Global Education, seemed to agree. "The China market, once a major export destination, looks increasing vulnerable in the midst of trade tensions," he said, warning that an improvement in exports to China may not be sustained if upcoming US-China trade talks are unfruitful.

Maybank Kim Eng economists Chua Hak Bin and Lee Ju Ye went so far as to say that "July trade numbers may have been distorted by companies stocking up in anticipation of higher US and China tariffs in coming months".

"We think the trade war impact may be more apparent later in the year," they wrote in a report.

While OCBC is bullish on Singapore's full-year export prospects, predicting between 4 per cent and 5 per cent growth, Ms Ling said that escalating trade tensions and a high base from August to December last year "may still pose some headwinds for NODX growth in the coming months".

Enterprise Singapore recently bumped up its NODX growth forecast to between 2.5 per cent and 3.5 per cent, from 1 per cent to 3 per cent previously, on a stronger second quarter.

Non-oil re-export (NORX) figures, seen as a proxy for wholesale trade, told a similar story. NORX was up by 8.5 per cent year on year in July, outpacing the previous month's 5.2 per cent rise, as non-electronic shipments made up for a wider slip in electronics.

Total trade grew by 17.6 per cent in July, extending a gain of 10.2 per cent in the month before, on the back of expansion in both imports and exports.


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