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ANALYSTS say electronics manufacturers in Singapore will be among the hardest hit by the fast-rising Singdollar, which has soared to a new record high against the weakening United States dollar.
Singapore's currency rose to $1.3482 against the greenback at 5pm yesterday. Six months ago, it was $1.4655. The previous high was $1.3495 last Thursday.
Economists say that while the strong Singdollar is a boon to consumers and US-bound tourists, electronics manufacturers in Singapore will be hurt as pricing is vital to them. A stronger Singdollar makes exports to the US more expensive.
'The impact will be significant in the electronics industry as compared to industries like pharmaceuticals,' said United Overseas Bank economist Ho Woei Chen.
'The electronics industry is highly competitive, making demand for products more price-sensitive.'
Action Economics economist David Cohen said: 'Industries in which Singapore has a larger market share, such as oil drilling, might be less affected, given that Singapore is a leading producer.
'Firms in a competitive industry like electronics are more likely to see demand falling as a result of the appreciation of the Singapore dollar.'
Earlier this month, the Monetary Authority of Singapore allowed the Singdollar to jump in value as part of its fight against rising inflation, which is at a 26-year high.
Signs of an export downturn are already emerging.
A recent report by Citigroup economist Kit Wei Zheng said the rising Singdollar will slow already weaker global demand for Singapore's non-oil domestic exports, which fell by 5.9 per cent last month, their sharpest slide since February last year.
Another concern is that the Singdollar appears to be rising faster than most regional currencies, which will further dent export competitiveness.
It is up a whopping 20.3 per cent against the Korean won in the past 12 months, and 2.6 per cent against the Taiwan dollar.
One benefit of a stronger local currency is that imported components and other manufacturing inputs are cheaper.
But economists caution that rising production costs, such as labour, paid in Singapore dollars, will hurt manufacturers.
'The operating environment in general has become tougher for manufacturers in Singapore,' said CIMB-GK economist Song Seng Wun. 'This is because of the rising costs of materials and wages and mounting inflationary pressures.'
Still, economists say many exporters are now more focused on making quality products with a market edge than cost competitiveness. So the currency issue may be less relevant to them.
'Singaporean exporters no longer compete based on low costs,' said OCBC Bank economist Selena Ling, adding that most manufacturers in Singapore have 'some sort of edge over the competition that is not based on export prices'.
'The appreciating dollar and rising business costs will probably have more of an impact on new investments coming into Singapore,' she said.
But a rising Singdollar remains a force to be reckoned with, say some electronics manufacturers and exporters.
A spokesman for Ellipsiz, a semiconductor manufacturing solutions firm, said the strengthening Singdollar will have a more 'profound and immediate' impact on firms than rising business costs.
'If the Singdollar continues to strengthen against the US dollar, we believe the problem of profit margin compression will worsen.
'There are ways we can manage rising business costs, such as optimising office space use and manpower costs. In the case of the appreciating dollar, it is more difficult for us to manage the impact as this is a macro-level factor.'
Currency hedging is a possible response, but carries risks, the spokesman added.
chiaym@sph.com.sg
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