Trade rally supporting economic growth but outlook for domestic demand still cloudy

  Singapore's non-oil domestic exports rose 8.5 per cent in July from a year earlier, according to IE Singapore data out on Thursday (Aug 17).
Singapore's non-oil domestic exports rose 8.5 per cent in July from a year earlier, according to IE Singapore data out on Thursday (Aug 17). ST PHOTO: ALPHONSUS CHERN

SINGAPORE - At the start of this year, economists were worried that a rising tendency towards protectionism would weigh on world trade and by extension, crimp the growth of Singapore's small, trade-dependent economy.

But recent trade data has been robust - particularly for electronics shipments - and is helping to allay these fears.

Still, some economists have warned that the trade rally could be peaking, even as there remains a big question mark over the outlook for sectors which rely largely on domestic demand, most of which have not experienced a lift from the pick-up in trade.

Singapore's non-oil domestic exports rose 8.5 per cent in July from a year earlier, according to IE Singapore data out on Thursday (Aug 17).

This came in slightly below economist expectations of a 9.1 per cent expansion and was also down from the preceding month's 8.8 per cent rise.

The slower-than-expected showing was due largely to the volatile pharmaceuticals segment, where shipments plunged 54 per cent year-on-year. The value of July's pharmaceuticals exports came in at $778.5 million - the lowest since December 2008.

Meanwhile, electronics shipments remained resilient, rising 16.3 per cent in July over the same month a year earlier - the ninth consecutive month of growth.

Economists have raised concerns that the sector might be hard-pressed to sustain the strong growth it enjoyed earlier in the year, which was driven in large part by surging global demand for semiconductors and related equipment.

But the latest numbers show electronics exporters are starting the second half of the year on steady footing.

"Exports and trade continue to drive the growth recovery, with early signs that the momentum is holding up well in the third quarter," said Maybank Kim Eng economists Chua Hak Bin and Lee Ju Ye.

Barring further negative geopolitical surprises and uncertainties in the US political space, "Singapore's growth outlook should continue to be underpinned by its rosy external environment", said OCBC economist Barnabas Gan.

Citi economist Kit Wei Zheng said he was "not overly concerned" about the dip in volatile pharmaceuticals shipments in the latest data.

"The data is consistent with our view that external demand will continue to support overall growth, though momentum may moderate," he said.

In addition, non-oil re-exports - a proxy for wholesale trade services - surged 17.5 per cent in July after expanding 8.3 per cent in June, which suggests that "outside of manufacturing, trade related services continue to benefit from sustained growth in regional trade activities".

"The key uncertainty (going into the second half of the year) remains whether the export recovery spills over into domestic demand," said Mr Kit.