Signal of more gloom?

Signal of more gloom?

Tuesday • August 19, 2008

CHEOW XIN YI

cheowxinyi@mediacorp.com.sg

JULY export data released yesterday fell short of economists’ forecasts, fuelling concerns that there will be further downgrades to Singapore’s full-year growth and export performance.

Non-oil domestic exports fell 5.7 per cent last month from the same period a year ago, below the market consensus of 5 per cent, as shipments to the United States contracted at the fastest pace since 2001. On a seasonally-adjusted basis, exports contracted2.2 per cent from a month ago, in contrast to economists’ expectations of a 3.4-per-cent rebound.

“Export (growth) will likely remain in the red over the balance of the year, as the global slowdown broadens beyond the US into Europe and Japan,” said Citigroup economist Kit Wei Zheng.

Electronics shipments continued to be in the doldrums, falling 14.2 per cent from a year earlier, the 18th consecutive month of decline. Pharmaceuticals, largely expected to rebound, instead plunged 42.4 per cent from the same month a year ago, offsetting the 26.5-per-cent growth in petrochemical exports.

In fact, shipments in the notoriously volatile pharmaceutical sector have declined in eight out of the past nine months in what UOB economist Ng Shing Yi calls a “worrying trend”. She said: “We expected pharmaceuticals to be more defensive as an industry compared to electronics, which is more cyclical, but that is not turning out to be the case.”

Some economists are now expecting full-year export performance to fall short of the official forecast, which was only recently downgraded. Last week, the Government said it expected exports to contract between 2 and 4 per cent this year, downgrading from an earlier estimate of a 2- to 4-per-cent expansion.

The poor export performance suggests further downside risks to third-quarter gross domestic product figures, said CIMB-GK regional economist Song Seng Wun. The Government this month lowered this year’s economic expansion forecast to between 4 and 5 per cent from an earlier estimate of between 4 and 6 per cent.

Besides highlighting underlying growth fears, the latest export data also raise the question of whether the Monetary Authority of Singapore (MAS) should loosen up monetary policy to help exporters, said Mr Vishnu Varathan, an economist at research house Forecast Singapore.

To combat inflation, currently at a 26-year high, the MAS had allowed for a quicker rate of Singapore dollar appreciation at each of its last two semi-annual meetings. A strong Singapore dollar helps ease imported inflation but also makes Singapore’s exports less competitive.

But Mr Varathan said there would be room to manoeuvre. “Our monetary policy resides within a trading band, so there’s some free play within the band. The MAS can actually nudge the Singapore dollar lower to the softer end of it without actually impacting inflation expectations,” he said.

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