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Analysts mostly keep NODX forecast after May numbers

Felicia Tan
Felicia Tan • 8 min read
Analysts mostly keep NODX forecast after May numbers
Singapore’s NODX dipped by 0.1% in May, marking the mildest decline in 20 months. Photo: Bloomberg
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Analysts are mostly keeping their non-oil domestic exports (NODX) estimates for 2024 after Enterprise Singapore released May’s figures on June 18.

During the month, Singapore’s NODX dipped by 0.1%, marking the mildest decline in 20 months. Electronics NODX also posted the first double-digit growth in 22 months with its 21.9% y-o-y expansion.

CGS International (CGSI) economists Nazmi Idrus and Song Seng Wun have maintained their NODX forecast for 2024 at 3.4% y-o-y as they expect the pharmaceutical sector to remain a drag on the overall performance of Singapore’s NODX.

“Even as electronic exports continue to improve, we expect the weakness in the pharmaceutical sector to continue weighing down on the overall performance of NODX, dragging down the non-electronics sector in 3Q2024 (April - June 2024: -18%), per a survey by the Singapore Economic Development Board,” they write in their June 18 report.

However, the analysts see that electronics NODX are likely to continue growing into the second half of 2024 as the semiconductor industry is expected to show strength in the same period from positive market momentum.

On June 6, the Semiconductor Industry Association reported that global semiconductor industry sales reached US$46.4 billion ($62.66 billion) in April, marking a 15.8% increase y-o-y and a 1.1% increase m-o-m, Nazmi and Song point out.

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The analysts also see both upside and downside risks going forward; the resurgence of Covid-19 cases may benefit Singapore’s exports as it could lead to higher demand of goods from the pharmaceutical sector while the imposition of additional tariffs from the European Union (EU) on Chinese electric vehicle (EV) imports could impact Singapore’s China-related supply chain.

Maybank Securities analysts Chua Hak Bin and Brian Lee have also kept their NODX growth forecast at 7% to 9% in 2024.

“The encouraging May NODX print, alongside robust growth in integrated circuit (IC) shipments, is in line with our view that tech demand shows tentative signs of broadening,” write Chua and Lee in their June 18 report. The analysts’ estimates are the most upbeat among the brokerages featured here.

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To them, though Singapore’s exports are benefitting from the pickup in the demand for global electronics, the country is still lagging behind the artificial intelligence (AI)-leveraged economies in North Asia like Taiwan and South Korea.

“As indicated by the May purchasing managers’ index (PMI), new export orders for electronics (51.3) and the overall manufacturing sector (51.4) saw faster rates of expansion, suggesting that external demand remains robust,” the analysts note.

Meanwhile, they see that supply chain disruptions due to port congestions are a risk that may affect the recovery of the manufacturing industry due to delays in supplies, longer export fulfilment times and higher freight rates.

Although they see that the shipping disruptions have had a “modest” impact on Singapore’s trade at the economy-wide level so far, the disruptions may have contributed to the m-o-m decline in non-oil re-exports (NORX), which fell by 5.9%, the first fall since February. Chua and Lee attribute the fall in NORX to certain shipping lines avoiding Singapore due to the port congestions.

RHB Bank Singapore’s acting group chief economist & head of market research Barnabas Gan and associate research analyst Laalitha Raveenthar have kept their full-year NODX growth at 0.5%, which is the lowest among the brokerages here.

RHB’s Gan had downgraded his full-year NODX growth to 0.5% in his April 17 report, down from his previous estimate of a 3% expansion y-o-y. The downgrade came after March’s NODX fell more than expected.

At the time, Gan wrote: “Our decision to downgrade Singapore’s annual NODX forecast is primarily due to today’s surprisingly weak print (-20.7% y-o-y) rather than a deterioration in Singapore’s economic growth momentum. Our global assumptions for global trade and manufacturing activities to pick up will benefit Singapore’s externally-facing industries in 2024.”

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In their June 28 report, Gan and Raveenthar say they are still keeping their positive outlook as they expect NODX to pick up in 2H2024 due to an improved global backdrop.

“Notably, the global external economic environment has remained resilient so far this year, aligning with our above-consensus GDP growth forecasts for the US and China in 2024,” they write, while noting that the current decline in May’s NODX print was mainly due to the shipments of the “relatively volatile” pharmaceutical cluster.

“Given the inherent volatility in this cluster, this downturn may not indicate a sustained trend… We also expect Singapore’s manufacturing and trade-related sectors to support overall growth in 2H2024,” they add.

The analysts further predict that NODX will see a “gentle” y-o-y improvement for the rest of 2Q2024.

United Overseas Bank’s (UOB) associate economist Jester Koh and the global economics and market research team have maintained their 2024 NODX growth forecast at 4.5%. The team also expects to see a “more meaningful” recovery in the latter half of the year.

In their June 18 report, Koh and the team note that there are “optimistic recovery prospects” in electronics NODX.

“On a six months moving average (6MMA) y-o-y basis, electronics NODX turned expansionary for the first time since October 2022 (0.3%) and continued to exhibit incremental improvements (May: 1.4%, April: -4.6%, March: -6.0%) from the weakest reading recorded in May 2023 (-24.0%) which reflects the ongoing upturn in the electronics cycle,” writes Koh.

“Base effects remain favourable for the months of May - August while underlying end-demand fundamentals are intact, driven by the structural boost from generative AI-related applications which has positive spillovers to the consumer segment,” he adds.

On Singapore’s NODX to its key markets, the economist sees that the country’s exports “somewhat reflect the asynchronous growth path between advanced economies (namely the US and Eurozone) versus China”.

“On a 6MMA y-o-y basis, NODX to the US (May: -13.5%, April: -11.9%) and EU 27 (May: -31.0%, April: -32.5%) saw double-digit contractions possibly as the effects of elevated policy rates weigh on investment and consumption activity in these economies,” says Koh.

“Meanwhile, NODX to China remained resilient (6MMA y-o-y May: 19.5%, Apr: 27.4%), which is consistent with the stronger than expected 1Q24 GDP although we remain circumspect on the outlook given the weaker than expected industrial production and fixed asset investment data in May while both new and used home prices continued to contract,” he adds.

To DBS Group Research economist Chua Han Teng, Singapore’s May NODX numbers are “encouraging”. The economist, in his June 18 note, says he continues to expect a “gradual and fragile” recovery in exports in 2024.

“The expansion in new export orders of Singapore’s headline manufacturing purchasing managers’ index for the eighth straight month in May reflects improving external demand,” he says.

Chua also expects Singapore’s electronic shipments ro see “positive spillovers” from the ongoing global tech cycle upturn.

“Singapore’s electronics demand is improving, as seen from the continuous expansion in electronics new export orders for the sixth straight month as of May, while the global tech demand will likely be supported by the replacement of smartphones and personal computers (PC)s, as well as the broadening use of AI applications,” he adds.

However, economists will need to keep a lookout for ongoing global uncertainties that could keep the improvement of Singapore’s manufacturing sector “fragile”.

Global uncertainties include ongoing geopolitical conflicts that could still disrupt supply chains and persistent US-China rivalry, as well as economic policy uncertainty such as the timing and extent of potential US interest rate cuts,” says Chua.

In her June 18 report, HSBC Global Research analyst Yun Liu notes a “divergence” within Singapore’s NODX numbers, although “green shoots” in tech shipments have begun to materialise.

While the recovery in the trade cycle offers optimism to Asian exporters, the trend appears to have not yet to be reflected in Singapore's NODX data. Alas, the headline data suggests that NODX has not ceased to decline on a y-o-y basis, even though the fall was rather marginal in May,” Liu writes.

“However, a detailed delve into the data indicates that it is not all doom and gloom. It is all because of a divergence between non-electronics and electronics shipments,” she adds.

Though the pharmaceuticals sector was a drag on Singapore’s NODX overall, Liu also sees that this sector could “swing back into expansion mode” due to its volatile nature.

To Oxford Economics’ economist Sheana Yue, the “bright spot” in May’s trade data is the “healthy” 4.7% m-o-m seasonally adjusted rise in overall domestic export volumes.

Although this was largely thanks to a jump in oil domestic exports growth, NODX volume growth also held up well at 0.2% m-o-m seasonally adjusted,” she writes in her June 18 note.

“Despite the encouraging outturn for domestic exports, the bigger picture remains that the exports recovery will be gradual and bumpy over this year. We suspect any boost from exports to overall growth this year will be modest as the negative impact from past policy tightening builds,” she adds.

While Yue remains “cautious” on the export outlook, she notes that domestic exports appear to have “bottomed out” although re-exports continue to be the driver of growth in recent months.

“The combination of steady and unspectacular growth in the important export destinations of the US and EU suggest monetary policy will remain relative tight for a while yet. Global growth is therefore likely to be subdued at 2.6% this year, which will weigh on import demand. As such, goods exports will probably not provide a massive boost to GDP growth this year,” she writes.

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