9.7% drop in exports points to weak Q1 growth

BIG PLUNGE: Ships at Tanjong Pagar container port on Feb 23. Exports to China, Japan and Taiwan fell most sharply - likely due in part to the Chinese New Year holidays


    Mar 18, 2015

    9.7% drop in exports points to weak Q1 growth

    EXPORTS plummeted last month in a performance that economists branded as "dreadful" and "ugly".

    Non-oil domestic shipments plunged 9.7 per cent last month over the same month last year - the biggest fall in two years.

    Last month's poor showing was due in part to distortions from the timing of the Chinese New Year, which fell in February this year and in January last year.

    Even taking this into account, however, economists had expected last month's non-oil domestic exports to fall by only 0.9 per cent.

    They say the disappointing data is a sign that Singapore's first-quarter growth will be weak amid the still-lacklustre global economy and ongoing domestic restructuring.

    The statistics are also fuelling expectations that the central bank might further slow the appreciation of the Singapore dollar at its scheduled policy meeting next month.

    Shipments of both electronics and non-electronics exports declined last month compared with February last year, according to figures from trade agency IE Singapore yesterday.

    Non-electronics exports, which account for about 70 per cent of shipments, were dragged down mainly by a 30.9 per cent plunge in the petrochemicals segment due in part to lower oil prices.

    Shipments to all of Singapore's top 10 non-oil domestic export markets - except South Korea, the United States, Thailand and Malaysia - declined compared with February last year.

    Exports to China, Japan and Taiwan fell most sharply - likely due in part to the Chinese New Year holidays, said HSBC economist Joseph Incalcaterra.

    However, last month's data also "clearly shows" the impact China can have on Singapore's trade numbers and "slowing activity in China also explains a significant part of the contraction", he added.

    China is Singapore's largest export market, with the Greater China region - including Taiwan and Hong Kong - accounting for nearly 30 per cent of total non-oil domestic exports.

    The downbeat trade data, combined with weakness in other indicators like manufacturing output, point to a slow first quarter, said Chua Hak Bin, Bank of America Merrill Lynch economist, who referred to the latest export numbers as "ugly".

    He thinks the Government will likely cut its growth forecast to between 1 and 3 per cent for the year, down from the current estimate of 2 to 4 per cent.

    The weaker growth prospects and lower inflation risks suggest the Monetary Authority of Singapore (MAS) will further ease monetary policy next month, Dr Chua added.

    The MAS uses the exchange rate as its main tool to strike a balance between controlling inflation from overseas and laying the foundations for economic growth.

    A stronger currency helps counter inflation by making imports cheaper in Singdollar terms, while a weaker Singdollar helps exporters whose goods become cheaper in foreign markets.

    In a surprise move in January, MAS acted ahead of its scheduled meeting next month to tweak its exchange rate policy and ease the rise of the Singapore dollar.

    The almost unprecedented step was prompted by the oil price plunge, which dampened inflation and reduced the need for a strong Singdollar to combat rising prices.

    Credit Suisse economist Michael Wan, who said the latest export numbers were "dreadful", added that the broader macroeconomic backdrop "points to a much weaker Singdollar over the next few months".

    Citi economist Kit Wei Zheng noted that while it is looking increasingly likely that the MAS might allow the currency to weaken further, the extent of the policy shift will depend on how the economy performs over the January to March period.