Watchers rosy on Singapore trade outlook despite risk from China's slowdown

SINGAPORE export growth cooled below expectations in August, as a decline in non-monetary gold shipments weighed on the trade sector.

But underlying export demand is still strong, said analysts, who held their forecasts despite trade disruption risks from China and the region.

Non-oil domestic exports (NODX) grew by 2.7 per cent year on year in August, according to the latest figures from trade agency Enterprise Singapore (ESG) on Friday. A retreat from the 12.7 per cent gain in July, it missed the median forecast of 8.5 per cent in a Bloomberg poll.

The modest increase came on falls in exports to China and the European Union - two of Singapore's top 10 NODX markets - as non-monetary gold lost ground against a year-ago high base, lower prices and a global stock-market rally that ESG said "reduced the need for diversification against a weaker dollar and yields".

The decline in non-monetary gold exports and the volatile pharmaceutical cluster drove a 1.4 per cent contraction in non-electronics NODX.

The slide took some shine off the overall 16.7 per cent gain in the linchpin electronics segment, where global semiconductor demand continued to boost integrated circuit shipments.

Now, a slowdown in the Chinese economy poses another set of risks. Singapore's exports to China fell 17.5 per cent in August, including a 2.1 per cent slip in electronics NODX.

UOB economist Barnabas Gan noted that the decline in shipments to China is in line with poorer Chinese retail sales, factory output and fixed-asset investments in recent months.

China's industrial production growth eased lately to 5.3 per cent in August, which was below the forecast of 5.8 per cent in a poll from Reuters. August's figure is a dip from the 6.4 per cent recorded the month before.

"China remains Singapore's largest trading partner for both imports and exports. As China is also one of the largest trading partners for many of Singapore's other trading partners, this could translate into multiple-order negative conditions for growth, trade and manufacturing in these economies, should a potential economic slowdown occur," Mr Gan added in a separate e-mail to The Business Times.

Similarly, Bank of America (BofA) economist Mohamed Faiz Nagutha warned that weakness in China "could pose some near-term headwinds and prolong the sequential moderation in NODX, especially if it becomes protracted".

And Lee Ju Ye and Chua Hak Bin, from Maybank Kim Eng, flagged downside risks from "China's slowdown and tight freight capacity" in a report.

Ong Sin Beng, from JP Morgan's economic and policy research, also called the softness outside electronics and pharmaceuticals a concern for NODX. "The underlying momentum in regional goods exports has slowed and there is little evidence yet of a turn this quarter... It is not clear whether the recent pause reflects the cascade of supply-chain bottlenecks that are affecting intermediate producers or a weakness in final demand," he wrote.

On a seasonally adjusted, monthly basis, overall NODX was down by 3.6 per cent to S$15.5 billion, deepening from the dip of 0.9 per cent in July.

For now, though, analysts are loath to predict doom from the potential downside in the Chinese economy.

Maybank KE's Ms Lee told BT the high base for gold exports to China and the EU "should recede in the coming months". Indeed, NODX to China would have grown 22.9 per cent year on year with non-monetary gold excluded, Nomura's Euben Paracuelles and Charnon Boonnuch estimated.

Meanwhile, Mr Nagutha concluded that "NODX growth would have been significantly stronger at 18.3 per cent" if the contraction in non-monetary gold was excluded, and added that "underlying trends remained robust".

Sustained growth in underlying NODX, plus sequential increases seen in electronics, total trade and non-oil re-exports, "suggest that external demand remains resilient", he said.

UOB's Mr Gan noted that August's export data came "against a relatively strong performance over the same period in 2020, underlining the continued recovery of global trade flows".

He is thus still projecting full-year NODX growth of 8 per cent in 2021, while Maybank KE kept to a rosier 9 per cent "as resilient demand for chips and related electronics equipment will provide support". The official forecast from ESG is for NODX to expand by 7 per cent to 8 per cent.

Nomura's Mr Paracuelles noted that "slower growth in China and a resurgence in Covid-19 cases in key trading partners are clearly downside risks to Singapore's export outlook".

But, given the Republic's electronics and biomedical products export strength, "the global tech upcycle and vaccine demand should mitigate these risks substantially", he said.