April's export downturn: Temporary pullback or bigger cause for concern?

Vessels are docked along the container port in Singapore.
Vessels are docked along the container port in Singapore.PHOTO: AFP

SINGAPORE - Singapore's non-oil domestic exports (NODX) unexpectedly fell 0.7 per cent year-on-year in April, registering the first decline since October last year and a big reversal from March's 16.5 per cent growth.

Electronics exports moderated slightly to 4.8 per cent year-on-year from 5.2 per cent in March, government data showed on Wednesday (May 17).

But the main drag came from non-electronics shipments which contracted 2.9 per cent year-on-year and was the first drop since October. The highly volatile pharmaceuticals exports shrank 39.9 per cent year-on-year, the largest drop since October.

Exports to four of Singapore's top ten NODX markets contracted year-on-year: EU (-36 per cent), Hong Kong (-23.1 per cent), US (-9.6 per cent) and Japan (-2.3 per cent). But notably too, shipments to China grew 10.9 per cent, slowing from growth of 45.5 per cent in March.

Economists in their first reactions to the numbers considered if the data pointed to a sustained reversal of Singapore's export recovery:

UOB economist Francis Tan: Not too alarmed

April's sharp export pullback may have alarmed many market watchers, especially since NODX was growing at an average rate of 14 per cent over the previous five months. However, we think that this is only a temporary, technical pullback from an exceptionally strong month in March.

"NODX growth rates are notoriously volatile and a single month of technical pullback should not veer us off course in our longer term view of the recovery in global trade for 2017. Likewise, our forecasts show that we will see a technical rebound of 6.2 per cent month-on-month in May's NODX, although it implies a 5.8 per cent year-om-year contraction due to the high base in May 2016.

We still maintain our positive outlook on the overall NODX expansion for 2017 of 0.7 per cent, supported by continued growth in electronics exports. That said, we are also expecting that the strong double digit NODX growth since November 2016 cannot be sustained into the second half of 2017. This is especially since recent trade numbers reported by Asian economies also point to a slower growth rate.

Slower growth does not mean no growth. We are expecting Singapore's 2017 NODX to finally expand, after recording 4 previous years on contraction. As for now, we are still carefully watching the negative impact from the anti-globalisation rhetoric that has been fueling developed markets' sentiments. One country to watch out is still the US. In a paper by the Ministry of Trade and Industry, the US is the second largest source of final demand of the goods produced in Singapore and further trade-protectionistic measures will only hurt the path of our export recovery."

ANZ economist Ng Weiwen: Hard to sustain export strength in second half-year

"The moderation in electronic NODX growth potentially point to tentative signs of a maturing tech cycle.

"Against this backdrop and with China reverting back to its old but unsustainable investment led growth model, we think that that it would be challenging for the recent strength in exports to be sustained the second half of 2017."

DBS economist Irvin Seah: Export demand may be peaking

"Signs are surfacing that the manufacturing rally over the past six months could be nearing its end. The strong performance thus far has been largely driven by consumer demand. To sustain the current pace of expansion, much will really depend on companies increasing their capex going forward. That is, capital investment growth in key markets such as the US, China and to a lesser extent, Eurozone, would have to increase in order to provide further impetus to manufacturing activities. Otherwise, expect growth momentum to slow in the subsequent quarters."