Economists upgrade Singapore's trade outlook on hopes of strong export demand

ANALYSTS have upgraded Singapore's trade outlook for 2021, in the wake of the better-than-expected export performance in the first half.

External demand is tipped to stay strong in the next six months, even though Covid-19 outbreaks in key markets cast a pall over the forecast.

That's as non-oil domestic exports (NODX) jumped by 15.9 per cent year on year in June, picking up from 8.6 per cent in the previous month, according to the latest Enterprise Singapore (ESG) figures released on Friday.

That took growth to 9.9 per cent in the first six months. Selena Ling, chief economist at OCBC, said that Singapore may be on track for "the best year of NODX growth since 2018".

UOB and OCBC raised house NODX forecasts to 8 per cent, and Maybank Kim Eng to 9 per cent, up from a range of 4 per cent to 6 per cent before.

While trade agency ESG said in its report that June's shipment growth came on a year-ago low base, Barclays economist Brian Tan dubbed the base effect "relatively small, in our view".

Exports had already added 13.9 per cent in June 2020. As such, "continued expansion in overall exports and NODX underlines the continued recovery in global trade demand", said UOB economist Barnabas Gan.

Electronics NODX gained 25.5 per cent, on the back of higher exports of personal computers, integrated circuits, and diodes and transistors.

Meanwhile, non-electronics NODX expanded by 13.2 per cent, helped by specialised machinery - which ESG said rose "in line with robust global semiconductor demand" - and petrochemicals, bouncing back from a global down-cycle in previous years.

"All sub-sectors firmed in June, confirming the view that the April and May softening marked a pause rather than change in trend," said JPMorgan economic and policy research analyst Ong Sin Beng in a note.

"Given the expected recovery in the rest of the world, our view remains that the underlying recovery in goods demand should continue though mixed in with periodic volatility."

To be sure, Maybank KE economist Lee Ju Ye observed that the NODX strength "is partly due to higher prices, as real NODX (in 2018 prices) has been rising at a slower pace". Mr Gan believes that price gains - such as for commodities - "may provide the fillip to overall export value ahead".

Otherwise, Jung Sung Eun, an economist at Oxford Economics, said "recent weakness in trade momentum reflects disruptions on the supply side rather than demand", such as a global chip shortage and the impact of Covid-19 outbreaks on port activity.

Yet, she added: "China's domestic weakness and prolonged disruptions in the region due to worsening health situation remain key risks to Singapore's short-term external outlook."

That's as NODX rose year on year to seven of the Republic's top 10 markets, thanks to strong export demand from mainland China, Taiwan, and the European Union. However, exports to Malaysia, Japan and the United States fell year on year in June.

Despite a slump in exports to the US, the American economy "remains on a robust roll" in Ms Ling's view. But she warned of the worsening epidemics in Japan and Malaysia, where "there is some downside risk to their economies and hence import demand in the near term if the Covid situation is not carefully managed".

On a seasonally adjusted, monthly basis, NODX was up 6 per cent to S$16.3 billion, after slipping by 0.2 per cent in the month before.

Ms Ling called the month-on-month improvement encouraging, and said that "it may warrant some optimism" about the outlook, as Singapore eased restrictions and ramped up vaccinations from mid-June.

Overall, total trade rose by 25 per cent year on year in June, fuelled by increases in both oil and electronics.