Oops. April exports fell by 1.8% year-on-year

Don't panic yet, but the drop in non-oil domestic exports resulted in total exports growing by just 5% which is well below the 12.7% recorded in March.

NODX growth is facing headwinds due to high oil prices and the impact of the calamities in Japan. But, the economy will still struggle with tight capacity and the MAS was, therefore, right to tighten, according to HSBC.

“Exports appear to be facing headwinds from the supply chain disruptions associated with the calamities and, likely also, the impact of elevated oil prices on disposable incomes in advanced economies. The soft readings in terms of annual growth to some extent reflect the battle against the high base last year, but sequential growth numbers, albeit quite volatile, also turned south,” said Leif Lybecker Eskesen, HSBC Chief Economist for India & ASEAN .

The growth numbers for NODX were well-below consensus (7.9%) Moreover, NODX sequential growth remained in negative territory (-3.6% m-o-m sa vs. 3% in March). In real terms, NODX growth barely stayed positive at 0.8% y-o-y (vs. 14.6% in March).

By markets, growth in NODX destined for the three major markets (EU, US, and China) showed divergent trends. Exports to Europe picked up handsomely led by non-electronics (pharmaceuticals, specialized machinery, and pumps for liquids). However, shipments to China grew at a notably slower pace on an annual basis and shipments to the US declined, in both cases led by electronics (contracting) and non-electronics. Shipments to Japan, on the other hand, were up led by pharmaceuticals, medical apparatus, and measuring instruments. NODX growth for other exports markets were also generally down on an annual basis.

Going ahead, HSBC said that we are likely to see more soft readings over the next few months for the same reasons, although the Japan-related supply disruptions are expected to be temporary and dissipate during the second half of 2011.

“Despite the expected slowdown in export momentum, GDP growth is projected to reach 5.8% this year and, therefore, keep pace with potential in 2011. A strong domestic economy will also help see to this. In turn, this will leave capacity tight and associated inflation pressures in place,” said Mr. Eskesen.

“Also, international commodity prices add to inflation pressures and will also have a second-order impact on inflation. So, the MAS will need to stay on its toes to keep inflation in check,” he added.