● The weakness in exports highlights some reasons for concern. The looming risk is that the country’s high nominal exchange rate, coupled with the increasing cost of doing business in the country will lead to a structural deterioration in the competitiveness of the country.
● The electronics sector continues to be soft, declining by 19% YoY. In 2012 as a whole, electronics exports contracted by around 4%, and in level terms, are more than 15% below that seen in 2010!
● Amidst a weak global economy, pharmaceutical exports grew by an impressive 10% in 2012, following an even better 19% gain in the previous year. We believe that the pharmaceutical sector will continue to outperform in 2013, which would likely support the headline export numbers at the margin.
Bad, as usual
Singapore’s export performance continued to be lacklustre. It contracted by
16% on the year, even worse than our own below consensus expectation of -12% (economists surveyed by Bloomberg were expecting an 8% YoY contraction). While this print implied that exports grew 1.8% month-on-month seasonally adjusted, according to official estimates, there is no doubt that trade figures from the islandstate remained extremely weak, falling 12% on a 3month-on-3month seasonally adjusted annualised basis. For the full year, the country’s non-oil domestic exports only grew by a paltry 0.5%, even less than the meagre 2.2% growth for 2011, largely reflecting on-going weakness in electronics exports.
Competitiveness issues?
While the weakness of exports, particularly when bearing in mind the underperformance of Singapore’s export growth compared with most other Asian countries, is partly due to cyclical factors (a moribund global economy for example), we also see some structural reasons for concern. We note, for example, that the manufacturing sector, and in particular electronics, seems to have borne the brunt of the government’s efforts to restructure the economy away from its dependence on foreign workers. The manufacturing sector contracted for the third consecutive quarter, according to the recently released GDP numbers. The looming risk is that the country’s high nominal exchange rate, coupled with the increasing cost of doing business in the country due to increased foreign worker levies and quotas will lead to a structural deterioration in the competitiveness of the country.
Electronics exports still contracting heavily
The electronics sector continues to be soft, declining by 19% YoY. We estimate that this implies a month-on-month contraction of 6%. While in 3month-on-3month terms, electronic exports have become much less negative, it is still too early to say that exports in this sector are beginning to bottom. In 2012 as a whole, electronics exports contracted by around 4%, and in level terms, are more than 15% below that seen in 2010!
Pharmaceutical exports had a better year
While the typically volatile pharmaceutical exports contracted by 11% on the year in December, partly due to a high base in the same period last year, looking at its performance over the course of 2012, it certainly provided some signs of optimism. Amidst a weak global economy, it grew by an impressive 10% in 2012 as a whole, following an even better 19% gain in the previous year. Anecdotally, we have also heard evidence of pharmaceutical companies closing plants in other countries and ramping up production in Singapore. We believe that the pharmaceutical sector will continue to outperform in 2013, which would likely support the headline export numbers at the margin.
Some signs of optimism?
We note that non-oil retained imports (NORI) of intermediate goods rose by 12% on the month in seasonally adjusted terms, following a decent 9% increase in the previous month. While strong performance of NORI might provide some lead to exports, we think any rebound in NODX is likely to be muted.
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