Brace yourselves for a slower export momentum in 2018

Citi projected a decline in export growth from 4.9% this year to 2.6% next year.

Singapore's export momentum is likely to slow down, but its growth is expected to broaden to areas beyond technology, Citi Research revealed.

Citi forecasted a 4.9% real export growth in 2017 and then cut it to 2.6% in 2018.

While tech momentum is likely to moderate from a high base, resilient demand – partly structural – and low inventories suggest a sharp slowdown is unlikely, the firm said.

Other manufacturing segments are expected to ride on the broader recovery in global capex, and any upside to oil prices may ease the drag from offshore and marine (O&M).

"An uneven capex recovery is beginning to take shape, though cost pressures on margins should be watched," Citi analyst Kit Wei Zheng said.

As profitability expectations rise, asset quality concerns wane and credit conditions improve. Citi said it is likely that the worst of corporate sector consolidation has passed, as seen on the sharp drop in business closures.

Foreign investment commitments in both manufacturing and services have already picked up, though local investment commitments, especially from small- to medium-sized enterprises (SME) have fallen.

Meanwhile, with the labour market slack's easing, consumer confidence has improved, and the spending recovery has broadened to encompass discretionary services.

"Still, we suspect the consumer spending recovery could be capped by moderate wage growth, negative wealth effects from recovering property market, high leverage and rising debt service burdens as mortgage rates rise along Fed hikes," Zheng said.

Here's more from Citi:

Whilst our and MAS’s baseline scenario sees core below 2%, we see risks from [1] rising unit business costs as cyclical productivity lift moderates, [2] stronger pass-through of earlier pent-up cost pressures as consumer demand improves [3] rising inflation expectations from recovering property prices, which could set the stage for core to converge closer to 2% by 2019.

With MAS’ conservative GDP forecasts setting a low hurdle for upside surprises, coupled with long lags between policy shifts and inflation, we see MAS steepening the slope “slightly” to 1% in 2018, which could dampen the pace of interest rate increases as the Fed hikes.

As we enter the second half of the current government’s term, constraints from the Balanced Budget rule could potentially impute an expansionary bias to fiscal policy from 2018 to 2019.

With stronger evidence of a recovery in private property transaction volumes, prices running ahead of wages, and bottoming of rentals in 2018, further easing of property measures can be effectively ruled out, with the next move more likely to be a tightening, aimed at containing the current en bloc fever, via a mix of administrative hurdles and supply side measures, and possibly further measures to curb investor demand.