Exports pave the way for stronger growth

[SINGAPORE] The drum beat of the Singapore economy is getting louder, as bullish October trade figures build on earlier data to paint a year of surprisingly strong growth. Economists now expect the government to upgrade its 2013 GDP growth forecast to as high as 4 per cent, when it announces third-quarter figures on Thursday.

Non-oil domestic exports (NODX) expanded for the first time since January, growing 2.8 per cent year-on-year in October - in stark contrast to market expectations of a contraction of 1.1 per cent.

The pleasant surprise is the latest addition to recent positive economic indicators, including hearty showings in the purchasing managers' index and industrial production numbers.

Findings from the latest Business Times-UniSIM Business Climate Survey, published yesterday, also showed that the economy could expand by up to 3.7 per cent in 2013.

Against this backdrop, economists BT spoke to believe growth momentum will strengthen in Q4 and into 2014, and most expect the government to raise its full-year GDP growth forecast beyond its current 2.5-3.5 per cent range.

DBS' Irvin Seah and Bank of America Merrill Lynch's Chua Hak Bin expect the government projection to be revised upwards to 3.5-4 per cent.

Yesterday, Dr Chua also raised his 2013 GDP forecast to 3.7 per cent (up from 3.5 per cent) and his 2014 projection to 3.2 per cent (2.8 per cent previously).

Said JP Morgan economist Sin Beng Ong: "Following relatively weak prints in Q3 2013, the October trade report builds on the slightly more positive tone seen in the September print and suggests that a modest upturn in external demand appears to be underway."

October's trade numbers reflected a broad- based improvement across various product categories, as the increase in non-electronic NODX outweighed the decline in electronic NODX.

Non-electronic NODX expanded by 4.9 per cent in October, following a 0.8 per cent increase in September. Apart from printed matter and petrochemicals, IE Singapore said the growth in non-electronic NODX was led by pre-fabricated buildings.

"This month's high sales of pre-fabricated buildings are likely to be a one-off spike for this half of the year," IE Singapore told BT, noting that the segment accounted for around 2 per cent of total NODX in October.

But electronics exports were no slouch either. Even though the sector continued to remain in contraction mode for a 15th consecutive month, its drag on overall NODX has narrowed to its smallest in a year.

Electronic NODX declined 1.4 per cent year-on-year in October, after a 5.5 per cent contraction in the month before.

Said Mr Seah: "I think this October NODX number essentially hints at a strong finish to the year. The improvement in electronics has turned out to be quite a surprise, and ties in nicely with September's electronics industrial production numbers in hindsight."

Despite the expected uplift to full-year GDP, however, economists from ANZ, DBS and UOB reckon that NODX is likely to undershoot the official growth forecast of 0-1 per cent this year because of the sector's weakness for much of the year.

Said Mr Tan: "With only two more months of NODX releases to go before we end the year, our forecast of a -3 per cent growth in NODX for 2013 is on the optimistic side, as it will imply an average of 14 per cent year-on-year growth in the last two months of this year.

"Singapore's trade agency's forecast of 0-1 per cent will imply an average growth rate between 33.5-40 per cent. As such, based on recent momentum in trade flows, we think that full-year NODX may likely come in around -4.5 per cent instead."

Except for the US, the EU 27, Japan, South Korea, and Indonesia, shipments to all of Singapore's 10 biggest markets expanded last month.

China was the top contributor to October's NODX increase, with Taiwan and Malaysia following in second and third places respectively.