Plunging demand from Europe and the United States, the two biggest markets for local manufacturers, sent non-oil domestic exports falling 5.7 per cent last month.

The fall marks the first time in seven years that exports have contracted for three consecutive months.

While the July figure almost halved the rate of decline recorded in the prior two months, economists say the weak global economy presents more dark clouds for local manufacturers, which ship most of their wares overseas.

'Export weakness is likely to translate into weaker manufacturing activity in the third quarter...we maintain the likelihood of a technical recession this year,' said Standard Chartered Bank economist Alvin Liew.

An economy is in a technical recession if it shrinks on a quarter-on-quarter basis for two straight quarters.

Mr Liew reckons that local exports for the full year may contract beyond the official forecast, downgraded just a week ago, for a 2 to 4 per cent decline.

Exports are proving to be the biggest bugbear of the Singapore economy, which is now tipped by the Government to grow between 4 and 5 per cent, down from an earlier forecast of 4 to 6 per cent.

Last month's figures disappointed yet again, coming in worse than a median estimate of a 5 per cent contraction by nine economists polled by Bloomberg News.

While improving on June's 10.6 per cent decline and May's 10.5 per cent slump, the latest contraction is seen as confirmation that factories here will not escape a widening global slowdown that was sparked off by the US sub-prime mortgage crisis.

There was little comfort for decoupling theorists, who had hoped that China, India and other growth engines would prove resilient enough to chart an independent path for emerging economies.

While local exports to China, Indonesia and other emerging economies bounced back last month from earlier falls, they proved insufficient to offset the large drag from Europe and the US.

Shipments to America fell 33 per cent while those to Europe sank 27 per cent as consumers in those economies cut back spending in the face of job and wage cuts.

Taking the brunt of this cyclical slowdown was the electronics sector, where overall overseas sales fell 14 per cent, their 18th straight contraction.

Europe-bound shipments of disk drives and semiconductor parts halved, while those of telecom equipment dived 70 per cent. Exports to the US fared just as badly, with computer parts falling 47 per cent and consumer electronics down 84 per cent.

'The underlying trend in electronics exports is clearly pointing south,' said HSBC economist Prakriti Sofat, who noted that while manufacturing output data has thus far been less gloomy, inventories of unsold goods might be stacking up.

'It's hard to be optimistic for this sector,' she said.

Pharmaceutical exports, while less likely to be buffeted by short-term economic cycles, continued to be a drag, falling sharply by 42 per cent.

Drug exports have fallen in eight out of the past nine months.

'Pharmaceutical exports were down for the fifth consecutive month - the longest spate of negative readings in the five-year history of the series,' said Ms Sofat.

Industry-specific production cycle quirks, such as lengthy shutdowns as plants switch production lines and the non-accounting of intermediate products, are taking their toll on the figures.

Also, the rise of generic drugs as patents run out on popular medicines is becoming a big challenge for the global pharmaceutical giants that operate plants here, the Government noted recently.

'We expect further downward bias to exports in the third and fourth quarters, due to flagging growth in the top export markets of Europe and the US,' said United Overseas Bank economist Ng Shing Yi.

'We expect exports to contract 3.5 per cent this year, on the lower end of the official forecast.'

bryanlee@sph.com.sg