Fear of technical recession looms as July exports fall

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Published August 19, 2008

Fear of technical recession looms as July exports fall

Global slowdown does not augur well for sputtering electronics exports

By OH BOON PING


(SINGAPORE) Continuing their downward trend, Singapore's non-oil domestic exports (NODX) shrank by 5.7 per cent in July as the shipment of electronic goods continued to fall.

This followed a 10.5 per cent fall in May and an 11 per cent tumble in June, and some economists are predicting a technical recession after the economy grew just 2.1 per cent in Q2 - the slowest growth in five quarters, and following a revised 6.9 per cent pace in Q1.

'The fall (in non-oil domestic exports) will translate into weaker manufacturing activity, at least for the third quarter, raising the likelihood of a technical recession in 2008,' said Alvin Liew at Standard Chartered.

Said David Cohen, an economist at Action Economics in Singapore: 'The global outlook is looking darker with Japan and Europe probably slipping into recession, and the US still sputtering. It doesn't bode well for demand for Singapore's exports.' A technical recession is defined as two consecutive quarters of economic contraction.

Non-oil retained imports of intermediate goods (NORI) also fell 5 per cent in the month - worse than the 2.8 per cent drop in June, mainly due to lower NORI of consumer electronics, parts of PCs, diodes and transistors and integrated circuits.

Total trade jumped 21 per cent to $88 billion last month.

Minus oil, domestic exports put on a dismal show in July. For example, electronics shipments contracted 14 per cent over the same month last year.

'The contraction in electronic domestic exports was largely due to weaker domestic exports of parts of PCs, consumer electronics, disk drives and ICs,' International Enterprise (IE) Singapore said.

Non-electronic exports posted a slight improvement of 0.3 per cent - reversing its drop of 7.9 per cent drop in the previous month.

'The turnaround in non-electronic NODX was largely led by higher domestic exports of ships and boats, petrochemicals and non-monetary gold,' IE Singapore said.

Except for Indonesia, China, Hong Kong and South Korea, domestic exports to the rest of Singapore's top 10 markets declined in July. According to IE, the United States, the European Union and Thailand were the top contributors to the NODX's fall last month.

NODX shipments to the US were down 33 per cent year-on-year following a 24 per cent drop in June.

Domestic exports to the EU sank 27 per cent, against a 16 per cent decline in the previous month. Shipments to Thailand, which dipped 8.4 per cent in June, tumbled 22 per cent.

Exports to China grew 8.6 per cent last month, bouncing back from a 12 per cent contraction in June. Shipments to Hong Kong, which dipped 0.5 per cent in the previous month, crept up a paltry one per cent.

Exports to Indonesia jumped 29 per cent in July, recovering from a 7 per cent decline in June.

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August 19, 2008 Tuesday

Exports heading south

Plunging demand from US, Europe causes worst slump in 7 years

By Bryan Lee, Economics Correspondent


EXPORTS of goods made here are suffering their worst slump since the 2001 dot.com crash with the third straight month of decline.

Plunging demand from Europe and the United States, the two biggest markets for local manufacturers, sent non-oil domestic exports falling 5.7 per cent last month.

The fall marks the first time in seven years that exports have contracted for three consecutive months.

While the July figure almost halved the rate of decline recorded in the prior two months, economists say the weak global economy presents more dark clouds for local manufacturers, which ship most of their wares overseas.

'Export weakness is likely to translate into weaker manufacturing activity in the third quarter...we maintain the likelihood of a technical recession this year,' said Standard Chartered Bank economist Alvin Liew.

An economy is in a technical recession if it shrinks on a quarter-on-quarter basis for two straight quarters.

Mr Liew reckons that local exports for the full year may contract beyond the official forecast, downgraded just a week ago, for a 2 to 4 per cent decline.

Exports are proving to be the biggest bugbear of the Singapore economy, which is now tipped by the Government to grow between 4 and 5 per cent, down from an earlier forecast of 4 to 6 per cent.

Last month's figures disappointed yet again, coming in worse than a median estimate of a 5 per cent contraction by nine economists polled by Bloomberg News.

While improving on June's 10.6 per cent decline and May's 10.5 per cent slump, the latest contraction is seen as confirmation that factories here will not escape a widening global slowdown that was sparked off by the US sub-prime mortgage crisis.

There was little comfort for decoupling theorists, who had hoped that China, India and other growth engines would prove resilient enough to chart an independent path for emerging economies.

While local exports to China, Indonesia and other emerging economies bounced back last month from earlier falls, they proved insufficient to offset the large drag from Europe and the US.

Shipments to America fell 33 per cent while those to Europe sank 27 per cent as consumers in those economies cut back spending in the face of job and wage cuts.

Taking the brunt of this cyclical slowdown was the electronics sector, where overall overseas sales fell 14 per cent, their 18th straight contraction.

Europe-bound shipments of disk drives and semiconductor parts halved, while those of telecom equipment dived 70 per cent. Exports to the US fared just as badly, with computer parts falling 47 per cent and consumer electronics down 84 per cent.

'The underlying trend in electronics exports is clearly pointing south,' said HSBC economist Prakriti Sofat, who noted that while manufacturing output data has thus far been less gloomy, inventories of unsold goods might be stacking up.

'It's hard to be optimistic for this sector,' she said.

Pharmaceutical exports, while less likely to be buffeted by short-term economic cycles, continued to be a drag, falling sharply by 42 per cent.

Drug exports have fallen in eight out of the past nine months.

'Pharmaceutical exports were down for the fifth consecutive month - the longest spate of negative readings in the five-year history of the series,' said Ms Sofat.

Industry-specific production cycle quirks, such as lengthy shutdowns as plants switch production lines and the non-accounting of intermediate products, are taking their toll on the figures.

Also, the rise of generic drugs as patents run out on popular medicines is becoming a big challenge for the global pharmaceutical giants that operate plants here, the Government noted recently.

'We expect further downward bias to exports in the third and fourth quarters, due to flagging growth in the top export markets of Europe and the US,' said United Overseas Bank economist Ng Shing Yi.

'We expect exports to contract 3.5 per cent this year, on the lower end of the official forecast.'

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