Weaker electronics exports to weigh on Singapore NODX in coming months: economists

THE slowdown in Singapore’s electronics shipments, which in August contracted for the first time in nearly 2 years, is likely to continue weighing on the city-state’s non-oil domestic exports (NODX) in the coming months, economists said.

“We are still cautiously positive on the outlook for some segments of manufacturing but we are also cognisant of a potentially much slower electronics performance and weaker demand from North Asian economies that could increasingly weigh on NODX momentum and manufacturing demand,” said UOB senior economist Alvin Liew.

This adds on to the concerns that global demand is heading towards a downturn on the back of more aggressive monetary policy tightening, he added.

Electronics exports shrank 4.5 per cent year on year in August, compared with a 10.3 per cent growth in the previous month, data from Enterprise Singapore (EnterpriseSG) showed on Friday (Sep 16). This is the first time since November 2020 that electronics exports saw a contraction.

In comparison, exports of non-electronic products rose 16.9 per cent year on year on the back of a jump in pharmaceutical exports, extending the 6.1 per cent rise in July. This helped overall NODX expand 11.4 per cent in August, up from 7 per cent in the previous month and beating market expectations of 8.4 per cent growth.

On a seasonally adjusted month-on-month basis, however, NODX shrank 3.9 per cent in August, undoing the previous month’s 1.4 per cent growth.

Economists said they are bracing for slower NODX in the second half of 2022, even if they are holding on to their full-year outlook for now.

“Given NODX growth for January to August is already 9.9 per cent year on year, our 2022 NODX growth forecast remains at 6-8 per cent year on year but may come in at the lower end of this range given rising downside risk attached to the remaining months due to the deteriorating external outlook as flagged last month,” said OCBC chief economist Selena Ling.

Agreeing with UOB’s Liew, Ling said aggressive global monetary policy tightening due to persistent inflation amid energy and food security concerns will continue to dampen global trade and raise the strain on the global economy.

Maybank economists Chua Hak Bin and Lee Ju Ye, who are also keeping their NODX forecast, said the sharp decline in electronics exports has raised the risk of a “technical recession”, defined as 2 consecutive quarters of negative sequential growth in gross domestic product (GDP).

“We see rising risks of a ‘technical recession’ as electronics manufacturing stagnates and contracts in the coming months, while trade-related services such as wholesale trade and water transport weaken,” said the Maybank team. “The reopening tailwind is dissipating and will not be strong enough to offset the global headwinds from rising interest rates and inflation.”

RHB senior economist Barnabas Gan is keeping his full-year outlook at 7 per cent but said he is optimistic about the growth of non-electronic exports, which in August saw the fastest pace of increase since December last year. “We pencil in some upside risks to our overall full-year NODX outlook on the back of non-electronic NODX, which had so far shouldered the bulk of export growth,” he said.

Nonetheless, he too is expecting NODX momentum to slow, likely driven by softening demand from East Asia. This was already reflected in August’s data, which showed a contraction in exports to China and Hong Kong - for the second straight month - as well as Taiwan. In contrast, exports to the United States surged 60 per cent, compared with a 10 per cent growth in July, while shipments to the eurozone jumped 57.3 per cent in August, up from 22.9 per cent in the previous month.

Said Liew: “We are surprised by the continued bounce in European demand in the Aug NODX numbers but we still expect a significant growth slowdown in that region.”