SINGAPORE, Sept. 18 (UPI) -- Singapore's electronic exports performance has been lagging behind its regional competitors and fell again unexpectedly in August, raising concerns the city-state may be losing some of its competitiveness, especially towards China, and is not benefiting from the upturn in the U.S. economy. Yet, some economists argue the country's exports are only lagging behind the U.S. recovery and a rebound should be expected in the fourth quarter.
The key non-oil exports on a month-on-month seasonally-adjusted basis contracted by 2.1 percent in August, the second contraction in a row, while on a year-on-year basis, export growth moderated to 3.5 percent, well below the consensus forecast of a 12.6 percent increase and a marked slowdown from the 10.8 percent growth in July and 18.7 percent surge in June
For comparison, exports from Taiwan grew 13 percent year on year in Aug, far better than July's 4.5 percent gain. The main reason was the increased demand from Asian neighbors and Europe with exports of electronic goods rising 22.7 percent year on year, reflecting the kick off of the peak season for electronics sectors. In South Korea, Aug exports also rose 10.9 percent, led by IT.
But in Singapore, the August disappointment largely came from a surprise 6 percent contraction in electronics exports, which account for nearly 60 percent of all non-oil exports. In particular, exports of PC parts slumped 23.5 percent, while exports of disk drives fell 2.4 percent, reversing the 21.4 percent gain in the previous month.
Economists are divided on the reasons why August electronics exports contracted. While some are arguing Singapore is losing exports competitiveness, others advocate that there is simply a delay in the transmission of the positive effects from the U.S. recovery and global electronics upturn onto Singapore's exports.
"We tend to favor the argument of the latter camp," said Lee Wee Liat, economist at DBS Bank.
"Looking into the details of U.S. inventories and new orders data, we found that the inventory drawdown in integrated circuits (ICs) were much sharper compared to the rest of the electronics products. While overall new orders were on the rise, U.S. new orders of electronics components were still on the decline in July. This implies that the pockets of weakness in our electronics exports is very much due to the fact that inventory drawdown in the U.S. for certain electronics components has not been deep enough and consequently new orders have yet to see any upturn," Lee added.
Indeed, some economists point out that Singapore's exports to the U.S. declined considerably in August, contracting 23.5 percent, with large falls in electronics shipments reported. In particular, major electronics products to the market, like disk drives, parts of PCs, ICs, and printers, all reported larger declines.
"We have long argued that the data in Singapore will lag a U.S. recovery and the latest export data reinforced this lead-lag relationship," said Joseph Tan, economist at Standard Chartered.
Economists also point the preliminary North American semiconductor equipment book-to-bill ratio rose marginally to 0.91 in August from 0.90 in July. "This is hardly impressive. Bookings, despite being above July's reading, are still below the level of the preceding four months," Tan noted.
Within the electronics sector, Singapore registered the sharpest exports fall for peripheral PC parts probably a reflection of China's expansion in that market. "These peripheral bits easily replicated and they don't require a huge capital outlay and investments. So China has been moving very fast," Tan said.
However, one economist also points the lack of U.S. demand and the rise of Chinese competition might not be the only reasons behind August poor electronic export data. "Out view is that the slowdown in intraregional trade is an important factor in addition to large inventory built-up in some sectors within the ICT space in China and the U.S.," said DBS economist Sailesh K. Jha in a research note.
Intra-regional exports (Asia ex-China and Japan) account for around 30 percent of non-oil export growth, while the U.S. account for around 20 percent.
"We don't subscribe to the view that China's competitiveness is eating up Singapore's exports currently. China's export growth actually declined in July and August," Jha said. He believes that import demand, particularly of parts and components (which includes disk drives) for PCs from the ASEAN region decreased. "This is the whole production fragmentation story for Asia at play," Jha said.
"It is tempting to interpret the relative weakness in Malaysian and Singaporean exports as evidence of China crowding out the ASEAN countries. That may not be right. Export growth throughout the region is slowing," added Michael Spencer, Asia chief economist at Deutsche Bank.
The fragile external sector suggests Singapore's economic growth remains moderate this year. While other Asian countries like Thailand and Malaysia are on a strong recovery path, Singapore's recovery remains wobbly at best.
Though economists still believe the city-state will manage to "escape" a technical recession (as defined by two consecutive quarters of GDP contraction), they believe Singapore will be hard pushed to post a growth above 0.5 percent this year.
Some are optimistic the lackluster exports will recover in the fourth quarter, as Singapore starts benefiting from the U.S. recovery.
"We should not discount the possibility that we could get a pretty strong bound in the fourth quarter, underpinned by a strong surge in electronics exports ahead of the year-end festive season," said Lee.
