UOB Global Economics and Market Research
Singapore's non-oil domestic exports (Nodx) surprised with an 11.6 per cent year on year surge in May, confounding Bloomberg median expectations for a 1.6 per cent contraction, and this comes in sharp contrast to the 7.9 per cent decline in April.
The electronics exports remained in decline, falling 6 per cent in May, a slower pace of contraction compared to April (-7.4 per cent) and March (-9.1 per cent), even as most of the key sub-segments within electronics remained in contraction territory.
But the weak electronics was more than offset by the 19 year surge in non-electronics exports, thanks to prefabricated buildings, a 436.7 per cent increase in non-monetary gold and 5.6 per cent increase in pharmaceuticals exports, according to the IE Singapore report.
Delving more into the details, the non-electronics exports component makes up around 70 per cent of overall Nodx of which the three biggest sub-segments of non-electronics exports are chemicals (30 per cent of overall Nodx), pharmaceuticals (11 per cent of overall Nodx) and petrochemicals (10 per cent of overall Nodx).
Except for pharmaceuticals, chemicals exports declined -4.1 per cent while petrochemicals fell even more by 12.1 per cent in May. And the increase of pharmaceutical exports was 5.6 per cent in May, much slower than the 17.9 per cent recorded in April, hardly enough to make up the 19 per cent jump in non-electronics exports.
Thus, this time round, the jump in non-electronics exports was clearly due to prefabricated buildings (increase not given by IE) and importantly, the 436.7 per cent y/y increase in non-monetary gold exports.
Even though the domestic consumption of gold is very small, Singapore is a big regional player in the gold trade.
And gold was a clear beneficiary of the uncertain environment in the first half of 2016: From the capitulation of the Chinese markets and plunging crude oil prices in early part of the year to the subsequent incredulous recovery of commodity prices led by crude oil (95 per cent increase from the trough of US$26.21 on Feb 11 till June 8) and the build-up of expectations for a Fed Reserve summer rate hike, gold price has risen some 20.6 per cent year-to-date (as of June 17), one of the best performing asset so far in 2016.
The high gold price could have led to gold dishoarding, incentivising sellers to come out to take advantage of the surge in gold prices while gold demand was also likely to be robust in May ahead of key geo-political risk event in summer (Brexit vote on June 23).
OCBC Bank , head treasury research and strategy, Ms Selena Ling
Nodx surged more than expected 11.6 per cent year on year in May, even better than our forecast for +0.2 per cent. May Nodx also marked a huge improvement from the -7.9 per cent result seen in April, and marked the strongest monthly Nodx reading since March 2015 in both year on year and month on month terms.
It may not last? Two contributing factors were (1) the generally low Nodx base last year in May 2015, and (2) the spike in non-electronics (+19 per cent) notably prefabricated buildings, non-monetary gold (+436.7 per cent) and pharmaceuticals (+5.6 per cent). Non-monetary gold exports are not typically the first things that pop to mind as the traditional key exports for the Singapore economy.
Non-monetary gold covers exports and imports of all gold not held as reserve assets (monetary gold) by the authorities. Non-monetary gold is treated as any other commodity and, when feasible, is subdivided into gold held as a store of value and other (industrial) gold.
Electronics Nodx still fell for the third straight month by 6 per cent in May, which is also milder than the 7.4 per cent contraction seen in April. The drags were still in integrated circuits, personal computers and PC parts.
For the top 10 Nodx markets, the positive turnaround seen in May were due to three markets: Taiwan (+11.2 per cent), the United States (+9.1 per cent) and Malaysia (+2 per cent). The other seven of the top 10 Nodx markets still registered declines in May.
Our forecast for full-year Nodx growth remains intact at -4.4 per cent year on year. It is hence likely too early to conclude that the May Nodx figure heralds a strong turnaround export engine story that will last beyond a month or two and/or shift the headline second quarter gross domestic product growth for that matter.