SINGAPORE (Mar 20): Singapore’s exports recovered in February following three straight months of decline but Maybank Kim Eng thinks it is still too soon to call this an inflection point.

However, there are clear signs of rising FDI in manufacturing across Asean as companies look to relocate and diversify their production network and Singapore may benefit from higher manufacturing capacity and exports in the neighborhood.

“We maintain our view that Singapore’s non-oil domestic exports (NODX) will remain weak in the first half as trade and PMI indicators across the region continue to flash red, especially for China, South Korea and Taiwan,” says Maybank analyst Chua Hak Bin.

Asean countries, including Singapore, may also be seeing some early signs of trade and demand diversion from the US-China trade war. NODX and non-oil domestic re-exports (NORX) in Feb were driven by exports to China, Hong Kong and the US.

NODX rose by 4.9% in Feb from a year ago vs  a 10.1% drop in Jan, boosted by non-electronics while electronics extended its decline.

For Jan & Feb combined, NODX fell by 3.4% due to Chinese New Year effects. NORX – a proxy for wholesale trade services – expanded 7.2%, supported by both electronics and non-electronics.

The turnaround in non-electronics exports was driven by the surge in non-monetary gold, pharmaceuticals and food preparations. On the other hand, electronics exports continued to contract but by a milder pace, led by disk media, PCs and diodes & transistors. A rebound in ICs and parts of PCs softened the pace of decline in electronics exports relative to past two months.

The rebound in NODX was driven by China, Hong Kong and US, which is a plausible sign of trade diversion. For instance, a key driver of exports to Hong Kong was ICs, which are mostly re-exported to China. We note that the top three contributors to the growth in NORX were also China, Hong Kong and US.

“We forecast Singapore’s GDP growth to slow sharply to +1.8% in 2019 from +3.2% in 2018, given the headwinds from the trade war and domestic tightening measures,” says the analyst, adding a recovery hinges on the US and China reaching a trade deal which has now been delayed to June.

Singapore exports recover but too early to cheer: Maybank

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