Singapore: March 2018 trade

By Michelle Chia, Economist, CIMB Research and Economic


HIGHLIGHTS

March 2018 trade

  • The contraction in non-oil domestic exports (NODX) tapered in Mar (-2.7% yoy) due to shallower declines in electronics and non-electronics shipments.
  • Export momentum is likely to accelerate in April, as the forward-looking manufacturing PMI points upwards and festive distortions fade.
  • US-China trade tensions may deter MAS from tightening monetary policy again in October, following last week’s decision to steepen the slope of the S$NEER policy band.

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Fourth consecutive month of sequential declines
NODX declined 2.7% yoy in March, eluding expectations of a slight gain (CIMB: +0.9% yoy; Bloomberg consensus: +1.2% yoy; February: -6.0% yoy), as exports fell in the electronic (-7.1% yoy vs. -12.7% yoy in February) and non-electronic segments (-1.3% yoy vs. -3.3% yoy in February). The seasonally-adjusted NODX contracted for a fourth straight month in sequential terms (-1.8% mom in March vs. -2.7% mom in February).

Electronic NODX was still a drag
The collective exports of the five largest electronic items fell 7.2% yoy in March (-11.0% yoy in February), weighed down by declines in integrated circuits (-6.3% yoy vs. -12.1% yoy in February), PC parts (-51.2% yoy vs. -48.1% yoy in February), as well as diodes and transistors (- 24.6% yoy vs. -25.6% yoy in February). On the other hand, exports recovered in the telecom equipment (+6.3% yoy vs. -13.4% yoy in February) and PC segments (+24.4% yoy vs. +17.7% yoy in February).

Reversal in chemical exports trims non-electronic NODX slippage
Non-electronics NODX shrank by a smaller margin in March, as exports of chemicals rebounded (+3.4% yoy vs. -7.2% yoy). The contraction in pharmaceutical (-1.8% yoy in March vs. -8.0% yoy in February) and petrochemical shipments (-1.4% yoy in March vs. -12.9% yoy in February) narrowed while external demand for other chemical preparations expanded.

Weak trade flows to Asia offset by G3
Outward shipments grew in the G3 markets – the US (+32.6% yoy), Japan (+21.6% yoy) and the EU (+11.3% yoy) – and Indonesia (+17.3% yoy), buoyed by robust demand for non-electronic NODX. However, exports to Asia were subdued, especially to Hong Kong (-20.9% yoy), China (-12.2% yoy), Thailand (-10.6% yoy), and Malaysia (-3.1% yoy).

Export momentum to pick up as PMI inches higher in March
Singapore’s official manufacturing PMI rose 0.3pt to 53.0 in March (52.7 in February), contributed by pick-up in production, new orders, supplier deliveries, new export orders, imports, stocks of finished goods and order backlogs. The electronics PMI increased 0.3pt to 52.4 in March (52.1 in February), as most sub-indices improved except input prices and employment.

NODX forecast remains unchanged pending US-China tariff spat
We maintain our NODX forecast of 6.7% for 2018F, as the tit-for-tat tariffs between the US and China are unlikely to take effect until Jun, pending public feedback. Nonetheless, the US’ threat to levy up to US$150bn in tariffs on China exports and potential retaliation from Beijing, threatens Singapore’s entrepot economy, of which trade is 371% of GDP.

MAS highlights trade tensions as a risk to the economic outlook
Last Friday, the Monetary Authority of Singapore (MAS) increased the slope of the S$NEER policy band to allow for ‘modest and gradual appreciation’. At the same time, it sounded its concerns over external developments, in particular, the risk of trade tensions between the US and China generating negative spillovers. Looking ahead, we think these concerns will lead MAS to err on the side of caution, by maintaining its current monetary policy stance at the next scheduled review in October.

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Originally published by CIMB Research and Economics on 17 April 2018.