Singapore export headed for sluggish growth

Recent export numbers were on the weak side following the very rapid expansion seen from end-2009 and well into 2010, HSBC said.

This reflects two factors: Simple base effects because of the previous steep recovery, but also an underlying slowdown in end-demand growth.

According to Leif Lybecker Eskesen, Chief Economist for India & ASEAN of HSBC, previous growth numbers were colored by the low base during most of 2009 when the economy was suffering from the global economic spillovers. However, the NODX base shifted higher in December 2009, especially for electronics, which partly explains the slowdown in the annual growth rate seen in December 2010. Another reason for the December slowdown in NODX growth is, as previously highlighted, that the global inventory restocking cycle is maturing and this, in particular, has a bearing on electronics exports.

Going ahead, the annual growth rate for electronics exports is likely to ease further as the inventory cycle matures and we run into the high base from early 2010 when electronics exports really took off. For non-electronics exports, we will as usual see ups and downs driven by the pharmaceutical sector's erratic production cycles and changes in product mix. But, exports of pharmaceuticals are also likely to grow at a slower pace on average relative to last year when new facilities were added and the product mix also boosted output (and thereby exports).

While exports slowed more than expected, it does not change the picture for the MAS. Despite the slower pace of expansion, capacity constraints are tight and will remain so for a while as growth will stay close to potential. So, the MAS will still need to maintain a tightening bias.

NODX growth numbers are no longer "lofty" but "softy", with signs that the global re-stocking cycle is maturing
and impacting electronics exports, in particular. But, the economy is still struggling with capacity constraints and MAS will have to maintain a tightening bias to contain inflation pressures.