NODX outlook remains bleak after February’s sharp decline

The external environment looks dicey.

February’s NODX print was the worst month of export performance in 2 years, surprising analysts who expected less than 1% contraction.

Non-oil domestic exports (NODX) fell by 9.7% YoY in February. On the margin, the headline number plunged by 9.4% MoM sa. While the numbers may look dire, it pays to note that figures for the first two months of the year are often heavily distorted by seasonal, base and currency effects.

According to a report by DBS, trade data for the first two months of the year are skewed by the Lunar New Year effect.

As plants in China go into the festive season lull, export performance of parts and component suppliers in Singapore will be affected. That’s seasonal effect. Moreover, the Lunar New Year tends to fall on different months, either in January or February, on alternate years. That will give rise to some degree of base effect.
In addition, the Sing dollar has weakened significantly against the USD over the past months. It has depreciated by about 7% YoY against the greenback in February. That by itself will inflate the NODX figure by 7% since export values are reported in SGD terms in Singapore. Now that’s currency effect. In short, with the mixed bag of factors, we have to take Feb15 NODX figures with a pinch of salt.

Here’s more from DBS:

That said, the extent of decline has been much worse than expected. And this warrant some concerns. The external environment looks dicey. The recovery in the US has been uneven. High frequency data remains mixed and fourth quarter GDP growth has been revised downwards. Separately, though Japan and the Eurozone are out of recession, significant structural impediments remain and outlook is still bleak. And China will be growing slower as well. Over-capacity there in previous years will take time to digest.

With the uncertainties in the external environment, export performance will be weighed down and GDP growth will be affected. While we maintain the view that overall GDP growth this year will average 3.2%, risk is on the downside.