Singapore's NODX falls at a slower 3.3% in July

[SINGAPORE] Singapore's exports continued its slide in July for a third successive month, weighed down by contraction in both electronic and non-electronic exports.

The slide in July occured at a slower rate though, providing some hope that the manufacturing sector activity may be bottoming out in line with a revival in shipments to the US, the European Union (EU) and China.

According to data released by the International Enterprise (IE) Singapore yesterday, Singapore's non-oil domestic exports (NODX) contracted 3.3 per cent year-on-year in July.

Even though this came in slightly better than the consensus estimate of a 4 per cent year-on-year contraction, and lower than the 4.6 per cent and 6.6 per cent decrease recorded in June and May, respectively, analysts believe the continuous slide reflects a deeper structural problem. "Non-oil domestic exports continued to contract, re-affirming concerns that Singapore's manufacturing sector continues to underperform and struggle amidst restructuring and stricter foreign worker policies," a Bank of America (BofA) Merrill Lynch Global Research report said.

Electronic exports continued its 24th consecutive month of decline. As compared to last year, electronic NODX contracted by 7.9 per cent in July, following a 17.4 per cent decline in the previous month, largely due to shrinking sales of integrated circuits (IC) (-5.1 per cent), parts of PCs (-14.5 per cent) and disk media products (-18.5 per cent).

Ben Shatil of JPMorgan Chase Bank cautioned that the continued slide of Singapore's electronics exports at a sequential trend growth rate that is running below the export growth of its regional peers, and tracking well below the level implied by the global purchasing managers' index (PMI), suggests that there are structural changes in the industry with perhaps a trend of offshoring of production.

While the decline in electronics exports is hardly surprising, the performance of non-electronic shipments was a setback. The non-electronic NODX contracted by 1.1 per cent in July, in contrast to the 1.3 per cent expansion in June.

Since electronics exports fared better than in June, some economists suugest the manufacturing sector may finally be ready for a turnaround.

Citi's Kit Wei Zheng said that the data suggests that manufacturing demand may be beginning to stabilise and the uptick in domestic PMI new orders data in July, especially for electronics, appears to support this view. CIMB economist Song Seng Wun was reported as saying that recent surveys of manufacturing activity have shown improvement.

Part of the reason for the improvement in July was due to the increase in shipments to the EU, US and China. Compared to a year earlier, Singapore's NODX to the EU surged 24.8 per cent in July rebounding from the 3.9 per cent decline in June. Similarly, the NODX to the US also grew 8.6 per cent last month compared to the 2.9 per cent drop in June. July also saw NODX to mainland China improve, gaining 7 per cent compared to the 5.3 per cent increase the month before.

The top three contributors to the NODX decline in July were Hong Kong, Indonesia and Japan.

On a month-on-month seasonally adjusted (m-o-m SA) basis, NODX rose by 2.5 per cent in July, following the previous month's 1.5 per cent increase. On a SA basis, the level of NODX reached S$13.9 billion in July, higher than the S$13.5 billion in the previous month.

Analysts remained cautious on Singapore's exports for the rest of the year. Since non-oil retained imports of intermediate goods (NORI) continued to decline 1.4 per cent month-on-moth SA in July 2014, remaining 9.7 per cent below the second quarter levels, Mr Kit suggested that manufacturers may not remain sufficiently confident of the demand outlook to re-stock parts and components.

UOB Economic-Treasury Research said that with downside risks expected for Singapore's electronics exports, it has also downgraded the 2014 NODX growth forecast to -1.0 per cent from 4 per cent earlier.