SINGAPORE (Dec 18): Singapore’s non-oil domestic exports (NODX) contracted 5.9% year-on-year contraction in November – marking the ninth consecutive month of decline. But analysts are quick to highlight that it is not all doom and gloom for the city state’s economy. 

UOB Group analyst Barnabas Gan notes in a Tuesday report that this was the smallest decline in nine months, and had outperformed the market consensus of an expected 6.4% decline. 

“Despite clocking declines since March 2019, it registered the smallest contraction over the last nine months, suggesting that a bottoming may be taking place,” says Gan. 

On the whole, market watchers appear to remain upbeat on Singapore’s growth prospects, identifying bright spots in the NODX trend. 

Tentative signs of recovery

Analysts hone in on the improved readings within the non-electronic NODX segment, which registered a growth of 1.3%, rebounding from the 11.2% decline in October. This was also the first positive growth print clocked by the segment since February. 

Chua Hak Bin, an analyst at Maybank Kim Eng Research, points out that although the non-electronics segment had spearheaded the overall NODX recovery, the electronics segment should not be ignored. 

Despite acknowledging that electronic NODX contracted by 23.3% y-o-y in November following the 16.4% decline in October, Chua opines that this might well be a surface-level issue that requires a closer examination. 

“Frontloading [in] late 2018 on Trump’s threats for further tariff hikes is however exaggerating the weakness,” shares Chua. “A very high base in Nov 2018 (+4.3%) as exporters react to Trump’s threat for further tariffs may have contributed to the steeper decline and overstating the weakness.”

Additionally, Chua notes that electronics exports rose to a 10-month high in level terms in November. 

“We think the electronics downturn is past its worst and a recovery, albeit sluggish, is underway. A partial US-China trade deal will help revive capex and exports, and electronics exports will likely emerge out of contraction by early 2020,” he adds. 

That being said, Chua envisions that a regional capex recovery is in the pipelines, as both electronic and non-electronic segments appear to be bottoming out. Apart from what he terms a “volatile” pharmaceutical sector, Chua expects the non-electronic segment to contribute to a capex recovery. 

Improved global trade conditions to aid recovery

Following a breakthrough in the US-China Phase 1 trade deal that took place on Dec 13, prior to new tariffs coming into effect, analysts are sanguine on the positive effects this could have on the Singapore economy. 

For a start, CGS-CIMB analyst Michelle Chia attests that the end of subdued global trade conditions is near, as China looks to increase purchases of American agricultural goods and makes new commitments on intellectual property, forced technology transfer and currency. 

“We view this development as a catalyst to Singapore’s export performance and GDP, as long as there is no tariff escalation while waiting for the agreement to be signed in January 2020 at the earliest,” says Chia in a Tuesday note. 

UOB’s Gan notes that Singapore’s trade outlook remaining hinged on the US-China trade developments. “Market risk-taking appetite is a notch higher in the latest week, as markets react positively to the recent US-China phase one trade agreement,” says Gan. 

Identifying key indicators such as a bottoming of semiconductor exports across Asia Pacific, Gan notes that this points to an increased likelihood for a rosier NODX environment in 2020. 

While UOB is expecting NODX growth outlook for 2019 to come in at -8.5%, it cites a “modest recovery” of +1.5% in 2020 amid positive trade developments. 

Other market watchers, too, are optimistic for the upcoming year. 

JPMorgan’s Ong Sin Beng expects a “slow and steady improvement” in 1Q20, given the expectation for a better external environment. 

“We have penciled in a gradual recovery in global capex and this should help buoy Singapore’s exports during 1Q20. As it stands, we expect that this trend should continue through next year,” says Ong. 

Maybank’s Chua GDP growth to edge up to 1.8% in 2020, from 0.9% in 2019 as uncertainties from the trade tensions dissipate. The way Chua sees it, manufacturing and exports will emerge out of recession in 2020, while services growth will strengthen on financial, business and tourism-related activities. 

“Coupled with the positive industrial production growth levels in September and October 2019 as well as improving Purchasing Managers’ Indices seen of late, Singapore’s macroeconomic fundamentals would likely improve into 2020 as global macroeconomic environment recovers,” adds Chua.