‘No light at the end of the tunnel’, say economists as Singapore slashes 2019 trade forecast

Economists expect the weakness in non-oil domestic exports, and particularly in electronics, to persist into 2020. ― TODAY file pic
Economists expect the weakness in non-oil domestic exports, and particularly in electronics, to persist into 2020. ― TODAY file pic

, Aug 13 — Grim second-quarter export numbers, coupled with a downgrade in the official forecast for the year, have all but dashed economists’ hopes for a turnaround in ’s trade outlook. 

Enterprise Singapore (ESG) said today that total non-oil domestic exports (Nodx) for the year is projected to contract by 8 to 9 per cent, after slumping 14.6 per cent in April to June from the same period a year ago.

In May, ESG had forecast Nodx to remain flat or shrink by up to 2 per cent for the full year. 

Maybank Kim Eng economist Chua Hak Bin said the downgraded forecast was a “more realistic assessment” of the trade situation. 

“There is still no light at the end of the tunnel,” he said.

The trade war between the United States and , coupled with the maturing of the global technology cycle have led to weaker demand for electronic products, which in turn is hurting Singapore’s electronic exports, he and other economists said. 

Based on ESG data, electronic exports dropped 26.9 per cent in the second quarter of this year, compared with the same period a year ago. 

Non-electronic exports also declined, by 10.5 per cent over the same period. 

A reality check

While several economists had earlier hoped for a recovery in the second half of this year, those the escalation of the trade war between the US and China have made this all but impossible, they said. 

The US recently announced it will impose an additional 10 per cent in tariffs on US$300 billion (RM1.26 trillion) worth of goods, which led to China weakening its yuan in retaliation. 

“The expectation of a bottoming out and sequential recovery towards the end of the year has all but disappeared. Hence the cut in exports forecast,” said CIMB Bank economist Song Seng Wun. “It’s a reality check.” 

It was no surprise that the electronics cluster would come off from its cyclical peak in the first half of 2018, but the decline has been exacerbated by the eruption and worsening of these trade tensions, economists added. 

“The smartphone cycle was very strong in 2017. New issued by and that year were major upgrades, there was strong demand for those, which ran into early 2018 as well,” said Rajiv Biswas, Asia- chief economist at IHS Markit. 

“That turned down since the middle of 2018 because of saturation of the smartphone market and slowdown of consumer spending in China.” 

Rajiv said it is not just the decline in electronics exports that is worrying, since it was pretty much anticipated by the market. . 

“What’s concerning is that non-electronic products also recorded negative growth,” he added. 

In particular, petrochemical exports, which is an important cluster for Singapore, registered a decline of 15 per cent in the second quarter from the same period a year ago. 

Weakness to persist in 2020

Several economists expect the weakness in non-oil domestic exports, and particularly in electronics, to persist into 2020. 

Forward-looking indicators, such as July’s Purchasing Managers’ Index — a measure of manufacturing activity — “continue to suggest that the underlying growth momentum is likely to weaken,” said Song. 

The sharp slowdown in exports has also been dragging down Singapore’s economy, economists say. 

The Ministry of Trade and Industry (MTI) downgraded its growth forecast for 2019 to between 0.0 and 1.0 per cent today, from an earlier projection of between 1.5 and 2.5 per cent growth. This is the second downgrade made by the MTI this year, after it slashed its projection for the economic outlook in May.

The ministry also said that the Singapore economy in the second quarter grew 0.1 per cent from the same period a year ago, the slowest since the 2008 global financial crisis. 

While Dr Chua expects a weak recovery in 2020 due to the low base in 2019, he said this is predicated on the outcome of trade war negotiations between the US and China. 

“Even a stalemate is a better outcome than a worsening,” he said.  

Gerald Wong, the head of Singapore research at , added: “As it stands today, if there is no resolution of trade tensions, it will still likely remain weak as headwinds persist into 2020.” ― TODAY

Source: The Malay Mail Online

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