Singapore July exports drop, raising recession risk

SINGAPORE: Singapore's non-oil domestic exports fell unexpectedly in July as electronics shipments contracted for a sixth consecutive month, raising the odds of the city-state sinking into a technical recession.

Singapore's trade agency said on Wednesday non-oil domestic exports fell 2.8 percent last month from a year ago and by a seasonally adjusted 2.3 percent from the previous month.

"There is a real risk that with the kind of weak start we saw in exports in the third quarter, and perhaps in overall manufacturing as well, we could see technical recession being a real possibility," said Song Seng Wun, CIMB's regional economist.

Singapore, one of Asia's more trade dependant economies, has been more affected by the slowdown in US and Europe, compared with countries like China and India, which continue to record healthy growth.

Electronics shipments from Singapore dropped 16.9 percent in July from a year ago, offsetting a 48.5 percent jump in pharmaceutical exports.

The city-state's economy contracted an annualised and seasonally adjusted 7.8 percent in the second quarter from January-March. Regional rival Hong Kong, whose economy is equally open and vulnerable, reported a 0.5 percent drop in second quarter GDP last week.

Economists had predicted Singapore's key exports in July would be flat month-month and rise 4.6 percent from a year ago.

The drop in exports was partly due to the strong local dollar , which gained around 14 percent against the US dollar in the 12 months to June, although it declined 3.8 percent versus the euro over the same period.

"The appreciation of the Sing dollar is posing a challenge for exporters," said DBS economist Irvin Seah.

"Given that most global trade transactions are quoted in US dollar terms, the stronger Sing dollar essentially implies that local exporters are now getting less in Singapore dollar terms unless they have hedged their US dollar exposure," he said.

The Monetary Authority of Singapore (MAS) has opted to control imported inflation by allowing a gradual appreciation in the currency, a move economists think may also have partly contributed to the weakness in exports.

"If external demand weakens significantly there could be a case for MAS to think about how strong they want the Singapore dollar to be," said Rahul Bajoria of Barclays Capital.

"At this moment, inflation is still a bigger concern than growth," he added.

Bank of America Merrill Lynch economist Chua Hak Bin noted that Singapore's non-oil re-exports -- a proxy for trade-related services -- contracted 9.7 percent in July from a year ago, suggesting a fall overall trade volumes.

"Besides slowing external demand, the government has broadened the tightening of foreign workers restrictions to the lower-rung white-collar segment," Chua added, which will cause additional headaches for manufacturers in Singapore.

Singapore's government, facing complaints from residents having to compete with foreigners for jobs, tightened rules on Tuesday for firms hiring overseas workers in mid-level positions.

Merrill expects Singapore's economy will expand by just 4.5 percent this year, below the government's recently downgraded GDP growth forecast of 5-6 percent.

Copyright Reuters, 2011