Singapore’s January non-oil domestic exports fall, external-oriented sectors likely to remain weak in 2016

Singapore's January non-oil domestic exports declined 9.9% y/y, as compared with a fall of 7.2% in December and lower than consensus expectations of a decline of 7.6% and Barclays forecast for a drop of 6.2%. On a monthly seasonally adjusted basis, exports increased just 0.7% m/m, after two continuous falls.

The decline in the exports was mainly due to fall in non-electronics export that fell 13.9% in January, as compared with a drop of 10.3% in December, caused by drop in petrochemical shipments. The drops more than countered a growth of 6.9% in pharmaceuticals shipments. In contrast, electronics shipments were relatively resilient in the month, dropping just 0.9% y/y, as compared with December's drop of 0.3%.

The weakness in non-electronics shipments is worsening, subtracting 9.8 percentage points from the headline growth. The drag in the non-electronics was mainly due to oil rigs, which is expected to deteriorate more in 2016. Oil rigs subtracted 4.8pp from non-oil domestic exports in January, the single largest drag on the headline number. Petrochemicals subtracted 1.7 percentage points, whereas pharmaceuticals added 0.9 percentage points in January. Meanwhile, electronics subtracted 0.2 percentage points in January.

On basis of destination, shipments to China weakened, subtracted 4.7 percentage points, whereas exports to Asia ex-China subtracted 3.3 percentage points from headline. On the contrary, EU-bound exports added 2 percentage points to headline.

Headwinds of continuously weak external demand and downward pressure on oil prices are expected to keep external-oriented sectors of Singapore weak in 2016. The weakness in the rig industry is expected to worsen. Meanwhile, China is expected to import less electronics from East Asia. External demand is unlikely to rebound in H1 2016 due to emerging headwinds such as currency volatility and rising geopolitical tensions.

The labor market is Singapore is expected to ease, although from a tight level, as job creation continues to weaken and layoffs increase, mainly in sentiment-sensitive services industries. There is a rise in risk that the economy might shrink in Q1 due to these headwinds. This threatens the likelihood that the MAS will maintain the SGD NEER policy band during its meeting in April.