July non-oil domestic export figure ‘distorted’

Industrial production index for July this Friday will offer more clarity on the outlook of the economy. Overall output growth is likely to register a fairly healthy pace of 9.4% YoY albeit slower than the 10.5% expansion in the previous month. Pharmaceutical output growth is expected to be the key driver behind the encouraging set of figures while production in the electronics segment will most likely continue to languish. In fact, a good outcome in July and August industrial production index should help to lift the odds against the risk of the economy falling into a technical recession. The economy contracted by 6.5% QoQ saar in the second quarter and most in the market believe that the risk of another quarter of contraction has risen given the poorer than expected July non-oil domestic export figure announced last week.

However, the point that many have missed is that the negative price and currency effects were at work to give the illusion that July NODX number was weak. Specifically, SGD has appreciated by about 12% against the USD between Jul11 and the same period last year. If the NODX figure was expressed in USD terms, NODX would have rose by 10% instead of a contraction of 2.8% in year-on-year basis. And in sequential basis, NODX would have contracted by a lesser degree of just 1% instead of 2.3% if we consider the 1.4% appreciation in SGD against the greenback between June and July.

Therefore, July NODX figure was just too distorted to give a clear picture on what lies ahead. Attention should be focused on July and August industrial production index whereby a strong outcome should help to quash all the talk about a technical recession in Singapore.