SINGAPORE: The slump in Singapore’s non-oil domestic exports (NODX) may not be reversed anytime soon amid an unpredictable trade conflict between the United States and China, said economists.
Two watchers of the local economy have cut their full-year forecasts for NODX – the most-watched figure in Singapore’s trade report – deeper into negative territory, after official data on Monday (Jun 17) showed a double-digit decline for the third straight month.
The decline in NODX adds to recent weak data, including a contraction in the purchasing managers’ index (PMI) for the month of May, signaling further downward pressure for Singapore’s economy ahead, experts added.
BIGGEST SLUMP IN NODX SINCE MAR 2016
Figures released by Enterprise Singapore on Monday morning showed NODX down by 15.9 per cent in May on the back of decreases in both electronic and non-electronic exports.
While it was better than the 16.5 per cent decline expected by economists in a Reuters poll, May’s performance was a deterioration from the 10 per cent fall in April and an 11.8 per cent drop in March.
It also marked NODX’s worst showing since March 2016.
Apart from the high base effect from a year ago as noted by Enterprise Singapore, economists also highlighted other factors at play, such as the fading of the electronics cycle, easing global growth and lingering uncertainties from the US-China trade spat.
Given that, NODX has contracted 9.3 per cent year-to-date, said OCBC economist Howie Lee. Electronics was the chief culprit with a 20.3 per cent plunge, while non-electronics has dropped 5.6 per cent since the start of 2019.
With the US-China trade conflict shaping up into a tech war given the recent bans on Chinese technology giant Huawei, economists do not expect a respite for exports anytime soon.
“The outlook is hazy and clouded,” said Mizuho Bank’s head of economics and strategy Vishnu Varathan.
While there were initial expectations for the weakness in exports to see some bottoming in the second half, the recent escalation in the US-China trade conflict has reversed all of that.
“There’s now an added dimension to the trade war staring right in the face of the electronics sector, particularly with how the spat has evolved and has become more specific to China’s tech sector,” added Mr Varathan.
“This means there’s a greater risk of a double dip in electronics.”
Citing similar reasons, economists from OCBC and UOB downgraded their full-year NODX forecasts on Monday. Both research houses are penciling in deeper declines than the official estimate, which sees full-year NODX falling up to 2 per cent or log zero growth at best.
Mr Lee from OCBC has penciled in a drop of 2.6 per cent for NODX in 2019, a downward revision from a 2.2 per cent fall, with the lacklustre electronics sector being the main drag on export growth.
“We do not see a quick turnaround in the fortunes of the electronics sector,” he said, citing how trade barriers by the US will likely crimp global disposable income, dampen worldwide demand for smartphones and personal computers, and push the highly cyclical electronics industry into an even deeper downturn.
“The US ban on Huawei is also expected to result in rippling effects across the electronics supply chain, which may inadvertently pressure the semiconductor and disk media industries that form a substantial portion of Singapore’s electronics exports,” added Mr Lee.
UOB economist Barnabas Gan said NODX could shrink between 1 per cent and 3 per cent for 2019, compared to a previous forecast of 1 per cent contraction.
“The downgrade in NODX contraction is predicated by the recent worsening of the US-Sino trade relationship amid the softening Chinese economic growth momentum,” he wrote in a note.
DOWNSIDE RISKS IN GDP GROWTH
Mr Gan added that if NODX declines as much as 3 per cent in 2019, which is the lower end of his expectations, Singapore’s full-year gross domestic product (GDP) will likely see further downside risks and come in at 1.8 per cent, instead of the initially expected 2 per cent.
Already for the first three months of 2019, Singapore’s economy posted its slowest growth in nearly a decade. This prompted the Ministry of Trade and Industry (MTI) to narrow its full-year GDP estimate to between 1.5 and 2.5 per cent, from 1.5 to 3.5 per cent.
A recent survey done by the Monetary Authority of Singapore (MAS) also showed private-sector economists further trimming their 2019 forecast for Singapore to 2.1 per cent, citing trade protectionism as the top growth risk.
“If you look at the ASEAN region, Singapore is one of the biggest export countries in terms of GDP, and we also have one of the largest exposures to electronics. We are very vulnerable to external headwinds,” Mr Lee told CNA.
“In light of what’s happening with the US and China, and slowing global growth, we have multiple challenges coming our way and that will likely add downward pressure to growth this year.”
Echoing that, Maybank Kim Eng senior economist Chua Hak Bin said: “Today’s trade numbers continued to underscore the fragility of Singapore’s export growth this year.”
“With the broadening of the US-China trade war to a tech war, Singapore may face increasing pressure and collateral damage given the widening reach of US export controls on emerging and foundational technologies.”
Maybank recently downgraded its 2019 forecast for Singapore’s GDP growth to 1.6 per cent, from 1.8 per cent, given the multiple headwinds.
If the US makes good on its threat to apply tariffs to the remaining trade items with China, resulting in a full-blown trade war, Singapore could slip into recession, said Dr Chua.
WHAT WILL MAS DO?
Given the bleak outlook, some economists have written off the likelihood of further monetary policy tightening by the MAS this year.
Mr Varathan, who sees “increasing risk of full-year GDP undershooting 1.5 per cent or slightly lower”, told CNA that the central bank will likely continue to stand pat when it meets for its semi-annual policy review in October.
The MAS kept its exchange rate-based monetary policy unchanged in April after tightening twice last year.
“Whatever they have done in 2018 is sufficient … and the MAS can just stand pat and watch.”
Some are not ruling out an easing move.
“Overall, the weakness in NODX appears to be persisting, in line with our recently downgraded forecast of GDP growth slowing sharply to 1.6 per cent in 2019,” said Barclays economist Brian Tan.
“Faced with the threat of the output gap sinking deeper into negative territory, we expect the MAS to reduce the slope of its official S$NEER (Singapore dollar's nominal effective exchange rate) policy band by 50 basis points in October, bringing the policy slope back to 0.5 per cent by our estimates," he added in a note.