Trade conflict could hit Singapore exports harder in H2: analysts

Electronics exports continued to decline by 3.8% in July.

Despite the global trade conflict, Singapore’s non-oil domestic exports (NODX) in July 2018 grew by 11.8% as the growth in non-electronic exports (+18.8%) offset the decline in electronics (-3.8%), but analysts are worried that the effects of the conflict might be felt soon.

UOB economist Francis Tan said in a research note that although NODX growth in July was above market expectations, it was mainly due to the contribution of the volatile pharmaceuticals segment.

“The exports of electronics remained weak and we are concerned about the ongoing US-China trade tensions (as well as US trade tensions with the rest of the world). These will certainly cloud the outlook for a very trade-dependent Singapore,” Tan said.

According to Maybank Kim Eng analyst Chua Hak Bin, July trade numbers may have been distorted by companies stocking up in anticipation of higher US and China tariffs in coming months. However, exports to other Asian countries in July are still growing at a robust pace.

NODX to the majority of the top 10 markets rose in July 2018, except Hong Kong, South Korea and Thailand. The largest contributors to the NODX increase were the US (+33.7%), Japan (+53.9%), and Indonesia (+42.8%).

“With the next round of tariffs on $16b of goods kicking off on 23 August, and tariffs on a further $200b (US list) and $60b (China list) in the cards, we think the trade war impact may be more apparent later in the year,” he said.

Chua noted that the Ministry of Trade and Industry (MTI) had cautioned that amidst the escalating trade conflict, Singapore’s externally-oriented services such as electronics, wholesale trade, and transportation & storage will likely ease in the second half of the year.

RHB Research concurred with the two that real export growth will slow down as the year progresses, but on the bright side, the moderation could be cushioned by several factors.

The declines could be offset by the increased production of the “very popular” radio frequency silicon-on-insulator (RF-SOI) chips used in smartphones and expected rising demand for capital goods, especially from the advanced economies, RHB Research said. Growth in the US is also anticipated to be stronger, underpinned by the tax cut policy in late 2017, it added.

“In the EU, unemployment continues to trend lower, and there is post-Brexit pent-up demand in private investments,” it added. ”For Japan, growth should be supported by preparations to host the 2020 Summer Olympics, along with rebound growth in the pharmaceuticals and marine offshore segments, amidst expected improvements in demand.” 

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