Analysts expect slowdown in NODX further into 2022 after September's NODX underperforms

Felicia Tan
8-min read

Despite the estimated slowdown, most of the analysts are keeping their 2022 NODX estimates unchanged.

Analysts are expecting to see a slowdown in Singapore’s non-oil domestic exports (NODX) for the rest of the year after September’s NODX growth fell below expectations.

On Oct 17, Enterprise Singapore (Enterprise SG) announced that Singapore’s NODX for the month of September expanded by 3.1% y-o-y, moderating from the 11.4% y-o-y growth seen in August.

While September’s growth marked the 22nd consecutive month of NODX expansions, the month’s growth was below Bloomberg’s median estimate of a 6.9% gain.

On a seasonally adjusted m-o-m basis, NODX fell by 4.0%, from -3.9% in August. Again, this stood lower than Bloomberg’s median estimate of a 0.4% gain.

The disappointing set of numbers was mainly attributable to the drop in electronic NODX, which declined for the second straight month and the first back-to-back y-o-y contraction since November 2020.

In September’s top 10 export destinations, NODX to China continued to fall, making this the third month in a row.

“Our biggest concern in recent months of NODX data persisted into September as the demand from China continued to weaken materially,” says UOB’s senior economist Alvin Liew.

“Notwithstanding the impressive robust NODX performance to date, the cracks in the export outlook is getting more visible. The worsening electronics performance, and increasingly weaker demand from North Asian economies, especially China, are clearly weighing negatively on NODX momentum and manufacturing demand,” he writes.

“The slower NODX growth to the G3 economies also affirmed that global demand is heading towards a downturn on the back of more aggressive monetary policy tightening,” he adds.

OCBC’s chief economist and head of treasury research and strategy Selena Ling also highlights China’s demand weakness even as eight out of the top 10 NODX markets saw positive growth in September, one more than August’s seven.

“For the year-to-date (ytd), China’s share of our NODX market has fallen from 17.6% averaged in 2021 to 15.1%, whereas that for the US has actually increased from 12.4% to 14.3%,” she writes. “Similarly, Hong Kong’s share of NODX has also slipped from 5.8% in 2021 to 4.5% for January-September 2022.”

“In real terms adjusted to 2018 prices, NODX to China and Hong Kong would have fallen a sharper 38.0% and 21.7% y-o-y respectively,” she adds.

Furthermore, Ling, referring to Chinese president Xi Jinping’s speech at the recent Chinese National Party Congress, sees that the “soft patch” in the North Asian market could remain a “millstone around the neck” in the near term for regional manufacturing momentum. This is because China’s zero-Covid-19 policy and US trade ties do not seem to be easing up.

However, the silver lining is that the NODX to the US market remains healthy and NODX to regional markets like Indonesia and Thailand are still resilient, she continues.

NODX forecasts

In his note on Oct 17, UOB’s Liew has kept his full-year NODX growth forecast for 2022 at 5%, at the lower end of the official forecast range of 5.0%-6.0% as he factors in a slowdown in NODX growth for the rest of 2022. His estimate also comes with the assumption that NODX growth may turn weaker in October and may record “significant contractions” in November and December.

Liew has estimated that Singapore’s NODX for October will come in at a growth of 0.5% while November and December may see contractions of 5.4% and 14.2% y-o-y respectively.

As OCBC’s Ling sees global demand as likely to continue to soften due to inflation and aggressive global monetary policy tightening, she says there may be some downside risk to her NODX growth forecast of 6%-8% for 2022.

Maybank Securities economists Chua Hak Bin and Lee Ju Ye are expecting Singapore’s NODX growth to turn negative in the coming months. This comes on the back of a downturn in the electronics sector and softer non-electronics growth.

While they have kept their NODX growth forecast at 5%-6% for 2022, they have cut their forecast for 2023 to -4% to -1% from -2% to +1% previously. This is to account for a sharper slowdown in global growth, they write.

“The International Monetary Fund (IMF) recently downgraded its 2023 global growth forecast to +2.7% (from +2.9% in [its] July forecast), as the outlook is clouded by the Russia-Ukraine war, cost-of-living crisis, and China’s slowdown,” the analysts note.

“A China reopening remains a wildcard, but if it materializes, will provide a boost to Singapore’s exports as China alone accounts for 17.6% of total NODX (in 2021),” they add.

RHB Group Research’s senior economist Barnabas Gan is also expecting Singapore’s NODX momentum to slow in the 4Q2022.

“The main reason for the slowdown will likely stem from the softening export demand from East Asia,” says Gan.

“Given the soft September trade data in real terms, the advance estimate of 3Q2022 GDP of 4.4% y-o-y could see downward revisions,” he adds.

In addition, Gan sees that the moderating commodity prices should continue to drag Singapore’s nominal trade values in 4Q2022.

Overall, Gan is keeping his NODX estimate for 2022 unchanged at 7.0%, slower than the ytd pace of a 9.1% expansion.

“In real terms, however, we think that NODX will contract by 1.7% in 2022, against ytd pace of -1.3%. The weakness seen in September’s electronic outbound shipments reinforces our view that softer semiconductor demand will likely weigh on Singapore’s NODX in the months ahead - electronic exports fell 10.6% y-o-y in September 2022, the deepest contraction since January 2020 (-13.0% y-o-y),” he writes.

Second trade war could exacerbate slowdown: CGS-CIMB

September’s numbers have highlighted what the markets have feared, says CGS-CIMB Research’s economist Nazmi Idrus.

In his Oct 19 report, the economist stressed that China’s economic slowdown has started weighing more heavily on trade-reliant neighbours in recent months, especially Singapore.

“Worse, the negative outlook is likely to be exacerbated with the revival of trade war between the US and China as the former has imposed sweeping restrictions on sensitive technology transfer,” he writes.

Idrus is referring to the updates from the Bureau of Industry and Security (BS), an agency under the US Department of Commerce on Oct 7, where it sought to further restrict China’s ability to obtain advanced computing chips, develop supercomputers and manufacture advanced semiconductors.

This was further expanded recently to include workers, directly and indirectly, providing support to China, he notes.

“From our perspective, this may not significantly affect China’s overall electronics trade in the near term given the country’s diversified export products. However, it will likely hamper the growth of its local electrical and electronics (E&E) industry in the long term, which may have implications for the overall supply chain,” Idrus writes.

“In addition, it is still uncertain what other steps the US will take and how China will retaliate, compounding the uncertainty. For perspective, E&E accounts for over 30% of China’s exports and, within that, semiconductor accounts for about 1.8% of shipment. For Singapore, electronics account for over 20% of exports,” he adds.

At this point in time, the outlook for Singapore’s GDP growth is “bleak” with Singapore’s purchasing managers’ index (PMI) recording at 49.9 in September.

This, says Idrus, points towards a contraction, which is the first time since January 2020.

Pulling the index down was the electronics sector PMI, which recorded a decline of 0.2 points from the previous month of August, at 49.4 in September, he notes.

“This was mainly attributed to a faster contraction in the indexes of new orders, new exports and factory output and a contraction in the employment index,” he writes. “Overall, trade is expected to remain modest going forward as factors are stacked for greater demand slowdown ahead. As a result, we maintain our outlook for moderating GDP growth in 2023 of 2.0% y-o-y compared to 3.8% this year.

Downtrend trend for NODX to continue: Oxford Economics

Oxford Economics' senior Asia economist Alex Holmes sees the weakness in NODX as likely to continue for some time.

This is given the deteriorating outlook for external demand, he writes.

"Exporters face a deteriorating outlook, with much of the developed world likely to slip into recession by early 2023," he says. "We expect net trade to be a major drag on [Singapore's] growth in next year".

"With exports set to drag on growth, we think Singapore GDP growth will slow to well below trend over the next year or so," he adds.

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