Singapore exports set to contract further amid weak demand: economists

SINGAPORE’S key exports are expected to contract further in the coming months amid weakening global demand conditions, and may only start to see improvements in the second half of the year, economists said.

Singapore’s non-oil domestic exports (NODX) tumbled a surprise 20.6 per cent year on year in December to the lowest level since February 2021. Both electronic and non-electronic exports recorded declines, the latest Enterprise Singapore data showed on Tuesday (Jan 17).

The latest print marks the third consecutive month of contraction, and was lower than the 17.5 per cent drop that private-sector economists had expected, according to a Bloomberg poll.

December’s larger-than-expected fall has made the cracks in the export outlook more visible, said UOB senior economist Alvin Liew. “The worsening electronics performance, and increasingly weaker demand from more major export destinations – especially China and the Asean region – are clearly weighing negatively on NODX momentum and manufacturing demand.”

NODX to Singapore’s top 10 markets shrank as a whole in December, dragged by declines in deliveries to mainland China (-31.8 per cent), Indonesia (-35.4 per cent) and Hong Kong (-34.6 per cent). Moreover, other than exports to South Korea and Japan – which remained positive – the contraction pace for the rest of the top markets mostly worsened in December, noted Liew.

Against this, he expects global demand to head towards a downturn on the back of more aggressive monetary policy tightening and fears over a recession in developed markets. Additionally, the high-base effect will continue to work against NODX going into early 2023, and so Singapore is likely to see a few more months of year-on-year declines in the first half of the year. He expects Singapore’s full-year NODX to shrink by 5.5 per cent in 2023.

The sharp plunge in December’s NODX may result in a downward revision in Singapore’s final fourth-quarter gross domestic product (GDP) numbers, which are set to be released in February, noted Maybank economists Chua Hak Bin and Lee Ju Ye.

“We expect the downturn in manufacturing and trade-related services to extend into the first half of 2023 as external demand deteriorates for both electronics and non-electronics,” they added. The Maybank economists expect NODX to shrink by around 1 per cent to 4 per cent in 2021, reversing three straight years of growth.

One silver lining is China’s announcement that it will be reopening its borders from Jan 8, which may help to offset the declines in other markets, noted the economists. But OCBC chief economist Selena Ling cautioned that the country’s post-exit Covid wave is likely to dampen its near-term growth prospects and so Singapore’s first-quarter NODX outlook remains grim.

“Until the global central banks including the United States Federal Reserve clearly pivot to a rate pause and the prevailing recession worries abate, global demand conditions are likely to continue to be weighed down in 1Q23,” said Ling. She expects Singapore’s NODX to contract by up to 17 per cent in the first quarter, and may contract up to 3 per cent for the full-year, assuming some stabilisation in the second half of 2023.

Given the lack of clarity over the pace of China’s reopening, RHB senior economist Barnabas Gan expects NODX to contract year on year between January and July this year. Nevertheless, the loosening of pandemic restrictions in China may help in the second half of the year, “considering that post-pandemic normalcy may be on the cards for the world’s second-largest economy,” he noted.

While Gan kept to his current NODX growth forecast of 1 per cent in 2023, he believes that there are downside risks to his projection given that the year-on-year declines have been more pronounced than expected. “A weaker trade prognosis should also invariably depress Singapore’s manufacturing activities in 2023, given Singapore’s status as an export-reliant economy.”

“In a nutshell, we think the balance of risks is tilted to the downside against our full-year GDP forecast of 2023 at 3 per cent,” said Gan. Still, he does not think Singapore will enter into a technical recession this year as the services sector is likely to cushion the decline on the back of improving tourism arrival numbers.

On a seasonally-adjusted monthly basis, NODX shrank by 3.3 per cent in December, extending the 9.2 per cent decline in the preceding month. On the whole, total trade fell by 7.7 per cent year on year in December, extending November’s 2.4 per cent decline. Exports were down 7.1 per cent, while imports declined by 8.2 per cent.