Dimmer prospects ahead for Singapore exports as July data reveals drag from China slowdown

SINGAPORE’S key exports could cool in the coming months, amid weaker demand from China and dimmer prospects for electronic exports, economists have said.

Non-oil domestic exports (NODX) to China contracted sharply by 21.3 per cent year on year in July, compared with a modest growth of 2.1 per cent in the previous month, according to data from Enterprise Singapore (EnterpriseSG) on Wednesday (Aug 17).

Key exports to Japan in July also shrank for the first time this year by 15.3 per cent, a marked reversal from the 18.6 per cent growth clocked in the month before.

Meanwhile, shipments to 6 of Singapore’s top 10 markets rose in July, with growth led by the euro zone, Malaysia and Taiwan.

Accordingly, overall NODX eased to 7 per cent year on year, from 8.5 per cent in June, even amid gains in both electronic and non-electronic exports.

Exports of electronic products rose 10.3 per cent year on year in July, up from 4.1 per cent, whereas non-electronic exports slowed to 6.1 per cent year on year in the same month, from 10 per cent.

July’s performance was slightly better than the 6.4 per cent growth that private-sector economists polled by Bloomberg had expected, but analysts appeared to strike a somewhat downbeat note.

“Exports continue to be driven and flattered by higher prices rather than volumes,” said Maybank economists Chua Hak Bin and Lee Ju Ye. They noted that real NODX, based on 2018 prices, contracted for the 6th straight month at 2.2 per cent.

Said UOB senior economist Alvin Liew: “The biggest concern in July’s data is probably regarding the demand from China and Japan as these economies’ growth outlook has weakened.”

He added that these could weigh on NODX momentum alongside other risk factors such as the ongoing Russia-Ukraine conflict, central banks’ hawkish stance and slower global growth.

RHB senior economist Barnabas Gan said the contraction in China, Japan and Hong Kong suggests that broad economic weakness in China may continue to weigh on Asia’s trade dynamics. He added that recent high-frequency data from China all missed market expectations.

“Risks of global manufacturing demand have magnified of late, given a slowdown in semiconductor sales in the Asia-Pacific, which should weigh on Singapore’s manufacturing and NODX momentum in H2,” he said.

OCBC chief economist Selena Ling noted that the global semiconductor growth outlook has turned “distinctly less upbeat”, and cited data from Gartner, which last month slashed its semiconductor revenue growth forecast to 7.4 per cent, from 13.6 per cent.

“Notably, weakness is emerging in semiconductor end markets, especially those exposed to consumer spending, and is attributable to rising inflation and interest rates pressuring consumer disposable income, and, in turn, spending on electronics products like PCs and smartphones,” she said.

Demand, however, remains resilient for continued cloud infrastructure investments and data centres, as well as the transition to electric and autonomous vehicles.

Noting that electronic exports rose sequentially, Barclays regional economist Brian Tan said the rebound in shipments of the typically volatile non-monetary gold and pharmaceuticals likely played an even bigger role in driving the continued rise of NODX in July.

But the outlook for pharmaceuticals is not a “shoo-in”, said OCBC’s Ling, with pharmaceutical companies bracing themselves for muted earnings amid high vaccination and booster rates.

Just last week, EnterpriseSG upgraded its full-year NODX projection to 5-6 per cent, from an earlier estimate of 3-5 per cent, even if analysts were not altogether convinced this was driven by stronger external demand.

In fact, most economists are now expecting export growth to slow down in the months ahead, even if they are keeping their full-year NODX outlook unchanged for now.

OCBC’s forecast is 6-8 per cent; RHB’s is 7 per cent; Maybank’s is 5-6 per cent; and UOB’s is 5 per cent.

Said Alex Holmes, senior Asia economist at Oxford Economics: “The bounce back in China’s economy following lockdowns is proving lacklustre. Meanwhile, elevated inflation and tighter policy will weigh on import demand from the rest of the world.”