Explainer: Why Singapore’s exports fell 8.5% in Dec, and why it matters

SINGAPORE — Economists had expected Singapore’s non-oil domestic exports (Nodx) to rise by about 2 per cent in December from the same period a year ago but instead, they fell by 8.5 per cent.

What happened? Data from trade agency Enterprise Singapore released on Thursday (Jan 17) showed that the sharp fall was led by steep drops in the shipment of several key export items:

• Electronics, down 11.2 per cent

• Pharmaceuticals, down 26.8 per cent

• Primary chemicals, down 28 per cent

• Specialised machinery, down 32.5 per cent

Shipments to all but two of Singapore’s top 10 export markets fell. The only two major markets to which exports rose were China and the United States.

WHY THE SHARP FALL?

Mr Song Seng Wun, an economist with CIMB Private Banking, noted that December was a gloomy month for much of the region, not just Singapore.

"Our drop in Nodx is consistent with countries that have already reported their December trade numbers, such as China, South Korea, and Taiwan. These countries reported weaker December figures," he said.

Ms Jingyi Pan, a market strategist at trading firm IG Asia, agreed that Singapore’s export data was not too surprising after China reported its own set of weak numbers.

Exports from the world's second-biggest economy slumped by 4.4 per cent in December compared with the year before, its biggest decline in two years.

Ms Pan added that the decline in exports to eight out of Singapore’s top 10 markets reflected a widespread slowdown in trade momentum last month. This is likely due to weak business sentiment, caused by global trade tensions and an uncertain economic outlook.

December’s export decline is consistent with the trend of importers and exporters pushing through their shipments earlier in the year to beat the introduction of tariffs levied by the US and China on each other’s goods — a process called “front-loading” — Mr Song said.

DBS bank's senior economist Irvin Seah said that many manufacturers, importers and exporters also tend to “front-load” their orders in anticipation of the lull during the Chinese New Year period. 

He added: “Before the decline in Singapore's December Nodx numbers, there was already a slowdown in the global electronics cycle. That has accounted for weakness in export numbers. 

“There is a synchronised slowdown in the global economy.”

WHY DO THE NODX NUMBERS MATTER?

Singapore's Nodx numbers are a key indicator of the country's manufacturing activity and export performance.

As Singapore is heavily trade-dependent, the export numbers are also regarded as an important measure of the overall health of the economy.

So if December’s weak numbers continue into 2019, it could spell trouble for the domestic economy, maybe even affecting the job market.

JPMorgan's analyst Benjamin Shatil said that the lingering weakness in the global electronics cycle “could begin to spill over into domestic activity, trimming demand and potentially halting a gradual recovery in employment growth which had characterised Singapore’s labour market through much of 2018”.

Whether or not exports will improve will depend a lot on the progress of trade talks between US and China, economists said.

The talks are underway. Last week, mid-level US negotiators met their counterparts in Beijing to discuss the groundwork for a long-term deal and avert a scheduled March 2 escalation of US tariffs. China’s vice-premier Liu He is set to visit Washington, DC before the end of the month.

Dr Tan Khay Boon, senior lecturer at SIM Global Education, noted: “Any major improvement in trade still requires some form of agreement between US and China.”

Brexit is another potential downer for regional trade.

“While that will affect more of the European Union and the United Kingdom, there may be a knock-on effect on this region, although it will be small,” Mr Song said.

Given the confluence of factors, economists are not optimistic about Singapore’s exports in 2019.

OCBC's head of treasury research and strategy Selena Ling expects Nodx “to flatline” this year.

The Government has forecast Nodx to grow between 0 and 2 per cent this year.

DBS’s Mr Seah said that there may be a likelihood that Singapore’s export numbers will rebound in January, but will experience a sharp decline thereafter.

“I expect exceptionally choppy trade figures for 2019,” he said.