Singapore’s economy out of the woods? Think again

NODX surprises with small gains, but risk remains.

Non-oil domestic exports (NODZ) surprised with a modest +0.3% yoy expansion in September, against market expectations for a contraction, and improving from -8.4% in the previous month. Electronics reverted to expansion, at +5.7% in Sep (vs. -2.7% in Aug), supported by better shipments of ICs, PCs and disk drives. Non-electronic exports contracted at a slower pace of 1.9% (vs. -10.7% in Aug). Petrochemicals and chemicals exports contracted at a more gradual pace in Sep, while pharmaceutical exports gained 6.6% after contracting 9.3% in the previous month.

Non-oil re-exports contracted a mild 0.1% yoy in Sep, hurt by the non-electronics component. The headline reading has gradually slipped from +4.5% in July and +2.5% in August, suggesting trade-related services were probably negatively impacted in late 3Q.

With positive developments in the exports industry, does this mean Singapore economy is now out of the woods?

Here's what analysts had to say:

Bank of America Merrill Lynch (BofAML)

The gain in electronic exports is encouraging, but it is not clear that exports are out of the woods. External demand remains frail, while outlook for the global PC industry is still cloudy. NODX to China, US and the EU contracted in September. Petrochemical exports will likely stay weak given the impact from low oil prices. Re-exports are also weakening, after a brief gain over late-2Q and early-3Q, reaffirming the trend of weak trade activity in the region.

Singapore may have avoided slipping into a technical recession based on flash 3Q GDP estimates (+0.1% qoq saar), but we think the risk remains. Based on exports and PMI indicators, we pencil about a 5% contraction in manufacturing output for September (vs. -7% in Aug). The MTI's flash GDP estimates imply a slightly slower 4.7% decline. Services growth, according to the flash GDP print, was supported by segments of the wholesale trade and transportation sectors in early 3Q. Today's data suggest the strength may not have lasted through to late 3Q. The economy would slip into a technical recession if final 3Q GDP growth is revised slightly lower from the flash estimate of +1.4% yoy, according to our estimates. The flash GDP estimate is largely based on activity indicators in July and August.

Francis Tan, UOB

The upside surprise in September NODX helped to allay some fears that Singapore may continue to experience contraction in exports until the end of the year, which could also see fears of ‘technical recession’ being re-visited in the upcoming final estimates of 3Q GDP to be released in November.
ƒ It was also hopeful that the slight easing by the MAS on 14 Oct could help support some incremental export volume in the months ahead. However, with Singapore’s relatively high import content that resides within its exports, the slower appreciation in the SGD NEER may have limited positive impact on final export demand. The more important aspect for us to observe a significant increase in exports will be income growth in our key exporting destinations, namely: China, Malaysia, Indonesia, and the US.
ƒ However, the on-going global growth slowdown that is tied to the lackluster growth in China, our top exporting country, as well as the deflationary trend in commodities continues to pose risk to Singapore’s NODX in the coming months. We remain cautious about the export outlook and therefore maintain our 2015 NODX forecast of a 1% contraction.

OCBC

NODX unexpectedly rose 0.3% yoy (+2.8% mom sa) in September, aided by a surging recovery in electronics exports (+5.7% yoy versus -2.7% previously) which outweighed the 1.9% yoy contraction in non-electronics exports. This is the first yoy growth since June, and came after a larger than expected slump in August, thereby bringing the 3-month moving average NODX growth to -3.0%. This is better than the 5.3% yoy NODX contraction we’ve pencilled in earlier, but real test of the pudding would be the coming  months to see if the uptick lasts, especially for electronics exports. 

For September, the improvement in electronics exporters were lifted by ICs, PCs and telco equipment, whereas the non-electronics NODX was dragged  down by petrochemicals (-19.1% yoy), printed matter (-36.2%) and primary chemicals (-28.6%). For the top 10 NODX markets, NODX grew in 5 markets led by Japan, Thailand and Indonesia, whereas NODX fell for the other 5 markets namely China, US, South Korea, Taiwan and the EU28.