Singapore is losing export competitiveness: Credit Suisse

Export growth will likely remain weak in coming years, bank's report says

Besides the sluggish exports situation, domestic demand in Singapore is expected to remain weak on the back of poor consumer confidence.
Besides the sluggish exports situation, domestic demand in Singapore is expected to remain weak on the back of poor consumer confidence.ST PHOTO: MARK CHEONG

Singapore is losing export competitiveness in the region and this is due to rising costs, according to Credit Suisse economists.

Their research also found that the Republic's small, trade-dependent economy is losing market share in the global goods trade, which means export growth will likely remain weak in the coming years.

Vietnam, the Philippines and China are winning the export race in Asia, according to the report by Credit Suisse head of South-east Asia and India economics and strategy Santitarn Sathirathai, economist Michael Wan and Mr Ray Farris, its head of Asia macro strategy.

The top three exporters have been gaining market share, thanks to improving competitiveness and having the right product mix.

Meanwhile, Indonesia, Taiwan and Singapore have underperformed global trade in recent years, driven by an erosion in their export competitiveness.

Economies in the "middle" include India, Thailand, Malaysia, and South Korea.

In Singapore, "wages have continued to rise in spite of low productivity growth, depressing corporate profits and pushing up unit labour costs, driven in part by the foreign- labour curbs imposed since 2010", the report noted.

As a result, investment growth has slowed and various surveys have indicated that businesses in Singapore intend to invest less.

"All these bode ill for the prospect of goods exports moving forward," the report added.

While Singapore's export growth has underperformed the pace of global trade, Vietnam's year-on-year export growth has outpaced global trade growth by 12 to 14 per cent on average since 2000.

There are also initial signs that the weakness in exports has spilled over beyond the goods sector into services.

The report said Singapore stands out because its deteriorating competitiveness comes alongside flagging economic growth, negative inflation and an extreme dependence on exports.

This mix is likely to prompt Singapore's central bank to ease monetary policy at its next meeting in October, the report's authors said.

Separately, a report released last Friday by ANZ Research noted that exports across Asia - with the exception of Vietnam - have been shrinking for two years amid weak demand. But with governments in the region pumping money into stimulating their economies, trade in Asia is becoming increasingly import-driven.

As domestic demand recovers, import growth should start gaining traction next year even though exports might still be lacklustre, the report said.

However, this might not turn out to be the case in Singapore, which was once again highlighted as a laggard. Domestic demand is expected to remain weak on the back of poor consumer confidence.

"The slump in consumer confidence suggests consumers will remain cautious, especially with the risk of external weakness spilling into domestic activity," the report's authors noted.

At the other end of the spectrum, the Philippines and Vietnam have reported the most resilient domestic demand among their fellow Asian economies.

A version of this article appeared in the print edition of The Straits Times on August 29, 2016, with the headline 'Singapore is losing export competitiveness: Credit Suisse'. Subscribe