As a Barometer, Singapore Points to Cooling Asian Economy
Singapore exports rose more than expected in April due to a surge in pharmaceuticals, but softness in electronics, a mainstay of manufacturing in many Asian economies, points to a likely slowdown in regional growth as China’s economy cools.
Singapore, an Asian business and financial center whose trade is three times the size of its economy, is widely seen as a barometer for the region. Electronics account for about one-third of its exports of domestically produced goods excluding oil.
The wealthy Southeast Asian city-state on Thursday said its non-oil domestic exports grew 8.3 percent in April from a year ago, beating the consensus forecast of 6.9 percent growth and turning around from March’s 4.3 percent year-on-year contraction.
Electronics, however, grew by just 1 percent last month, while electronics re-exports — an indicator of regional trade flows — shrank 5.2 percent year-on-year following a 5.5 percent decline in March.
“The re-export story is a reflection of the deceleration of the Chinese economy,” said Selena Ling, head of treasury research and strategy at Oversea-Chinese Banking Corp.
Ling said data from Asian countries shows shipments to China have been slowing, suggesting “the Chinese economy hasn’t bottomed yet, which means the trough will be in Q2.”
Singapore is one of the world’s largest transhipment centers and many of the region’s products are moved to Singapore before they are shipped further afield.
The city-state on Thursday also said its economy grew 1.6 percent in the first quarter from a year earlier, in line with its preliminary estimate and confounding economists who had predicted an upward revision. A decline in re-exports and a quarter-on-quarter contraction in finance and insurance, offsetting a stronger performance in manufacturing, were largely to blame for the failure to achieve the expected upgrade in GDP growth.
“On a sequential basis, the [finance and insurance] sector contracted for the second consecutive quarter, by 3.4 percent annualized, partly due to sluggishness in fund management activities,” the Ministry of Trade and Industry said. Singapore reiterated its forecast for GDP growth of 1 to 3 percent this year, down from 4.9 percent in 2011.
Singapore’s better-than-expected export data follows a series of disappointing economic news from several countries in the region, including China. The world’s second-largest economy last week said factory output grew 9.3 percent in annual terms in April, well below a market forecast of 12 percent, while annual growth in retail sales slowed to 14.1 percent from 15.2 percent.
In Taiwan, exports contracted for a second month in April, hurt by falling demand from the United States and China.
“It looks to us that output overshot orders in the first couple of months of the year, perhaps reflecting renewed optimism about the US and euro zone economies,” said Robert Prior-Wandesforde of Credit Suisse.
Turning to inflation, which remains stubbornly high in Singapore despite the slowing economy, a senior central bank official told reporters that Singapore’s year-on-year inflation could rise further before softening later in the year.
“Headline inflation remains high compared to historical norms. We think it will peak and soften over the rest of the year, but at elevated levels still,” said Monetary Authority of Singapore Deputy Managing Director Ong Chong Tee. Prices in the city-state rose by 5.2 percent in March from a year ago, accelerating sharply from February’s 4.6 percent.
Several economists expect April inflation to come in higher, with Credit Suisse predicting a 6 percent year-on-year rise in the consumer price index.
Barclays, which forecasts annual inflation will average 5.4 percent this quarter, has said the central bank could be forced to tighten policy further in October by letting the Singapore dollar appreciate at a faster pace.