Tokyo-Seoul dispute will add to S'pore exporters' woes

Singapore

SINGAPORE'S already-embattled trade-reliant industries face a new war front, as South Korea and Japan ramp up a tech-related trade dispute. (see amendment note)

Non-oil domestic exports (NODX) fell by 17.3 per cent year on year, widening May's 16.3 per cent slide. On a seasonally adjusted, monthly basis, NODX slid by 7.6 per cent to S$12.9 billion, against an increase of 5.8 per cent in the month before.

Export performance hit a six-year low in June and is the fourth straight month of double-digit decline - on contractions in both electronics and non-electronic sectors, as per Enterprise Singapore data out on Wednesday. Economists - already fretting over the full-year gross domestic product (GDP) outlook after shockingly poor second-quarter flash estimates last week - now warn that the Republic is trailing its regional electronics peers as well.

Electronic shipments, which have been on a downward jag since late 2017, shrank by 31.9 per cent in the sector's worst showing since 2009.

ING economist Prakash Sakpal reported that the electronics sector showed "a significant under-performance" against South Korea and Taiwan, as well as supply-chain intermediaries in Malaysia, the Philippines and Thailand - which "suggests some structural shift under way".

Flagging the same trend, Citi analysts said Singapore-based multinationals involved in tech exports may have taken more fire from regional supply chain events such as US curbs on Chinese vendor Huawei. "If so, the fluidity of supply chain-related developments could be a source of volatility for exports in coming months," the Citi report added.

United Overseas Bank economist Barnabas Gan still leans towards the US-China trade war and a cyclical electronics slump as key risks to exports.

"While headwinds against exports are not isolated to Singapore alone, further contraction in NODX is likely to be on the cards given the ongoing trade slowdown seen across Asia," he wrote.

But "the opening of a new front in global trade tensions and the risk of disruptions to the regional tech supply chains are unwelcome additions to the growing list of challenges facing Singapore's economy at a time of plummeting NODX and electronics exports", Barclays' Brian Tan said in an e-mail to The Business Times, referring to the Japan-South Korea spat.

There was no comfort to be had in the non-electronics sphere, either, as shipments fell by 12.4 per cent year on year in June - worsening from a 11.1 per cent drop in the month prior.

The volatile pharmaceutical segment lost 11.3 per cent, after exports gained 28.5 per cent in May. Selena Ling, head of treasury research and strategy at OCBC Bank, cited this return to negative territory to suggest that May "was potentially only a blip".

"Pharmaceutical exports may not be a reliable pillar of support to offset ongoing electronics export weakness," she wrote in a flash note.

Save for the US, non-oil exports to Singapore's other top markets fell again in June - led by Hong Kong, mainland China and Europe.

Yet, Maybank Kim Eng has concluded that Singapore "is not a beneficiary of import substitution from the US-China trade tariffs", based on year-to-date declines in exports of tariff-hit goods to both the US and China.

Singapore's total trade decreased by 7.2 per cent year on year in June, as both exports and imports fell - widening a slip of 2.2 per cent in May.

The official forecast for full-year NODX is a range from flat growth to a 2 per cent decline, after a downgrade in May, but some watchers floated even more pessimistic predictions - OCBC's Ms Ling, for one, expects contraction of 5 per cent to 8 per cent.

She called second-half export performance the million-dollar question, and it remains to be seen whether a full-year NODX contraction risks falling below her lower bound, she said.

Still, UOB's Mr Gan pointed to central bank chief Ravi Menon's remarks last month on how the economy might stabilise from the third quarter on. "If, despite the downturn we've seen, Ravi Menon was still reiterating the same story in June, and they probably have more numbers than we do... it's some consolation," he said.

Analysts will be watching the June manufacturing figures to get a better read on second-quarter GDP - which could come in stagnant, with growth of just 0.1 per cent, based on advance data. Otherwise, a downward revision from the estimates may be in the cards.

Barclays' Mr Tan has inferred that the latest exports pullback bodes ill for June's factory output numbers, which are slated for release next week, while Mr Seah remarked in a report: "Today's set of figures follows a long string of awful data in recent months, and there is no respite at the moment."

As they now stand, the GDP flash estimates point to "a rather severe 8.7 per cent plunge in implied industrial production", Maybank Kim Eng senior economist Chua Hak Bin told BT.

Amendment note: Owing to an editing error, an earlier version of this story said that the Tokyo-Seoul trade dispute, which began in July, contributed to the decline in export growth in June. The article has been corrected to reflect that, while economists do not believe the dispute had a bearing on June trade, there is concern about its impact on future export performance.