Exports continue to slip, but GDP may find footing

SINGAPORE] Singapore's key non-oil domestic exports fell more than expected in May despite a weaker Sing dollar, but this does not necessarily spell doom for the economy in the April-June quarter.

Instead of seeing the faltering NODX dragging down the gross domestic product, some private-sector economists see the economy still doing better than in the first three months when the GDP grew just 0.2 per cent from a year ago.

Quarter-on-quarter, the economy expanded 1.8 per cent on a seasonally-adjusted annualised basis in the first quarter.

The NODX tumbled 4.6 per cent year-on-year last month, according to International Enterprise Singapore yesterday, overshooting the 1 per cent fall in April and the 0.2 per cent dip that the market expected.

The government's trade promotion agency said May's NODX slipped 1.1 per cent from April, after a 1.1 per cent rise in the previous month.

"In all likelihood, 2Q GDP growth should be stronger than the first quarter, given the better IP (industrial production) numbers for April," said Michael Wan of Credit Suisse. "In addition, with these latest numbers, the NODX for the second quarter certainly looks better than the first quarter's."

Seasonally adjusted, the NODX is tipped to be about 5 per cent higher in Q2 than in Q1 (which saw the NODX drop 3 per cent from Q4 2012), if exports stay at May's level in June.

Added Citibank's Kit Wei Zheng: "Overall, the April-May trade data still hints at a sequential expansion in Q2 GDP."

He said more importantly, the non-oil re-exports' sequential surge against Q1 reflected the boost given by the regional export recovery to trade-related services, which was in line with higher sea cargo data - estimated to show a seasonally-adjusted 11.2 per cent jump from April to May.

"This should sustain a muted recovery averaging a seasonally-adjusted annualised 5 per cent, quarter-on-quarter, over the next three quarters, against the average 12 per cent seen in previous recovery episodes," Mr Kit said.

IE Singapore blamed the year-on-year drop in May's NODX, the fourth straight monthly decrease, on "a contraction in electronic NODX which outweighed the rise in non-electronic domestic exports".

Domestic electronic shipments plunged 13.2 per cent last month, extending the 9 per cent fall in April. The non-electronic NODX inched up 0.2 per cent, easing from a 3.3 per cent jump in April.

UOB Bank's Francis Tan and Jimmy Koh, while pointing to structural weaknesses in several PC-related export items - the electronic NODX has tumbled for 10 months in a row - are hopeful that the rebound in the global electronics cycle should soon lift export demand for Asian economies, including Singapore.

But they noted that Singapore's NODX had declined 8.7 per cent year-on-year for the first five months of the year, which makes it likely that UOB would have to downgrade its full-year growth forecast of 2 per cent for the NODX.

DBS Bank's Irvin Seah see a deeper malaise in the NODX's disappointing showing last month. He thinks Singapore is losing its competitive edge "drastically".

"Without the Singapore dollar's depreciation - the dollar has weakened by about 1 per cent against the greenback in May - it could have been worse," Mr Seah said. "External demand couldn't possibly be that weak when non-oil re-export (NORX) has recorded the best performance in recent years."

The NORX surged 19.1 per cent year-on-year in May, after a 16 per cent rise in April.

Except for China, Thailand, Hong Kong and Taiwan, Singapore's domestic exports to all its top 10 markets fell year-on-year in May. The top three contributors to the decline were South Korea, Malaysia and Indonesia.

Domestic shipments to South Korea plunged 41.1 per cent, following a 27.1 per cent drop in April. Shipments to Malaysia fell 20.4 per cent last month, and to Indonesia 19.7 per cent.