Non oil domestic export may have moderated to 12.3% in February 2011

The figure is down from a robust expansion of 20.8% in the previous month.

According to DBS, seasonal effect, specifically the Lunar New Year slowdown in production output is responsible for this pullback.

Manufacturing plants in China, key buyers of Singapore manufactured components and intermediate products typically eneter a lull period during the festive season.

This usually leads to some volatility in the exports and industrial production figures. And such effect will only get stronger each year with China becoming a more important market for Singapore.

Moreover, though key electronics and pharmaceutical exports appear to be in a soft patch over the last two months, we reckon that this will not last for long.

Despite the ongoing worries on high oil prices derailing growth, PMIs of key markets have remained in the expansion zone. And recovery in the US is solidifying with increasingly strong consumption data.

In addition, as long as Asia central banks do not "overkill" in their monetary tightening, we should see external demand picking up again towards the second half of the year.

In fact, DBS believes that Asian central banks are still behind the curve in their monetary policy. That should imply low risk of policy overkill and hence stronger production and export sales ahead.