Singapore downgrades 2023 export forecasts on weaker-than-expected Q1 showing

SINGAPORE has slashed its 2023 full-year forecasts for both non-oil domestic exports (NODX) and total merchandise trade amid weak external demand and lower oil prices.

NODX is expected to contract by 8 per cent to 10 per cent on year in 2023. This is worse than an earlier forecast of between zero growth and a contraction of 2 per cent, Enterprise Singapore (EnterpriseSG) said in its quarterly review of trade performance on Thursday (May 25).

Total merchandise trade is now projected to grow by -8 per cent to -6 per cent, from the previous forecast of -2 per cent to zero per cent.

Private-sector economists were not surprised by the move, given the weak advanced first-quarter growth estimates released in April and dimmed external outlook.

“EnterpriseSG’s downgrade was not a surprise, given the decline in Singapore’s export performance to date, and the downside risks to the global growth outlook, which will weigh on external demand,” said ANZ head of Asia research Khoon Goh.

But the revised official estimates were worse than what they had expected. The revised forecast is “significantly worse” than OCBC’s full-year 2023 growth forecast of around -3 per cent year on year, said the bank’s chief economist Selena Ling, who expects Singapore’s key exports to see a “tentative albeit subdued improvement” into the second half of the year.

“There is a risk that the global electronics demand recovery may be postponed towards the latter part of the year, or even early 2024,” said Ling. But she noted that US semiconductor company Nvidia’s strong Q1 earnings “throw a spotlight on how the demand for the computer power needed to drive the generative artificial intelligence industry boom may potentially be the next growth driver”.

Also more optimistic was RHB senior economist Barnabas Gan, who noted in a research note that recent high-frequency data – such as trade and industrial production – suggest a recovery in momentum, given the month-on-month improvement. “Our view is that despite the official downgrade, we hold comfort from the improving momentum seen in Singapore’s trade numbers, which are expected to stabilise and potentially accelerate in H2 2023.”

Moody’s Analytics economist Denise Cheok said she expects to see total merchandise trade decline between 4 per cent and 5 per cent in 2023, a tad more optimistic than the revised official forecast.

But while Cheok said she foresees that manufacturing exports may pick up towards the end of the year as the global economy feels the impact of China’s reopening, she cautioned that the initial rebound in Chinese household spending is likely to be geared towards domestic services instead of imported goods.

EnterpriseSG noted that external demand conditions have weakened for global manufacturing and goods exports, in contrast to the uptick in services activity. Manufacturing output slowed in the first quarter, particularly among Asian economies that are more exposed to the global electronics downcycle.

The agency expects further weakness ahead, given that new orders remain in the contractionary region for key exports such as electronics and chemicals. “Prices of these key exports had also started to correct from their peak in 2022.”

In addition, lower expected oil prices could also weigh on Singapore’s trade, said EnterpriseSG. “The sharp downturn in the global electronics sector is expected to weigh on electronics trade and exports performance, while the outlook for petrochemicals sector remains sluggish due to excess global supply and planned plant maintenance shutdown.”

NODX fell 16.2 per cent year on year in the first quarter of 2023, extending the previous quarter’s 14 per cent decline.

Both electronic and non-electronic NODX declined in Q1. Electronic NODX fell 25.2 per cent, while non-electronic NODX declined by 13.6 per cent.

On a seasonally adjusted quarter-on-quarter basis, first-quarter NODX declined by 3.3 per cent, following the 11.7 per cent contraction in the previous quarter.

NODX to Singapore’s top markets declined as a whole in the first quarter, with China (-22.5 per cent), Hong Kong (-40.2 per cent) and Taiwan (-25.4 per cent) being the biggest contributors.

Total merchandise trade fell 7.8 per cent in the first quarter, extending the 1 per cent decline in the preceding quarter.

In contrast, total services trade grew by 1.7 per cent in Q1, following the 7 per cent rise in the previous quarter.

ANZ’s Goh noted that services trade will continue to be a “bright spot” where “a continued recovery in tourism will help to drive growth this year”.