China’s reopening could boost trade
? Singapore’s NODX grew 12.4% yoy in May 22, outperforming both our and
Bloomberg consensus estimates.
? Trade to China is on a positive trajectory. NODX growth in May was nascent,
although better than in Apr, while imports showed a strong rebound.
? China’s reopening could provide a temporary respite, but the expected global
slowdown in the later part of this year will likely weigh on export growth.
NODX driven by both electronics and non-electronics in May
Singapore’s non-oil domestic exports (NODX) rose 12.4% yoy in May 22 (vs. +6.4% yoy in
Apr 22), outperforming our and Bloomberg consensus estimates. On a seasonally adjusted
(SA) basis, NODX rose by 3.2% mom SA, rebounding from the 3.3% mom SA decline in
Apr 22, and breaking the three consecutive mom SA declines seen since Feb 22. Both
electronic NODX and non-electronic NODX grew yoy in May 22. The former was driven
mainly by integrated circuits (ICs) at 26.6% yoy, parts of ICs (116.3%) and disk media
products (10.3%), while the latter by non-monetary gold (+344.4%), specialised machinery
(+26.4%), and measuring instruments (+38.0%).
Bright spots ahead as China reopens in Jun
Trade to China appears to be on a positive trajectory. Although NODX growth was nascent
at +0.2% yoy and -2.7% mom in May, it was still better than Apr’s -10.6% yoy and -13.9%
mom. China is still suffering from the effects of the Covid-19-related lockdowns which were
partially in place for much of the period. Meanwhile, imports from China improved
substantially, up 29.4% yoy and 23% mom in May (Apr: -2.9% yoy and -3.5% mom). We
suspect the improvement was a result of the partial reopening of factories in and around
Shanghai. In late-Apr, the city’s officials granted approval for the resumption of operations
for 666 companies, although some issues, including securing for supplies and on-site
worker isolation plans, proved to be a challenge. Nevertheless, production seems to have
improved as the Caixin China Manufacturing PMI rose to 49.1 in May from Apr’s record low
of 46.0. That said, May PMI was still below 50, indicating that the manufacturing sector was
still struggling to improve capacity amid the stringent Covid-19 control measures.
Nevertheless, China has eased more restrictions beginning in Jun, which should result in
a strong pickup in trade in the months ahead as more factories ramp up production. This
should bode well for Singapore’s and regional trade.
Electronic NODX’s shaky outlook
Electronics NODX accelerated to 12.9% yoy in May vs. +12.8% in Apr. However, the
outlook seems to be for moderation ahead. Singapore’s electronics PMI reading fell by 0.2
point to 50.5 in May, although still maintaining its streak of 22 months of continuous
expansion. The PMI report stated that the decline in index was attributed to a broad-based
slowdown, including in new orders, imports and employment, while segments such as
deliveries and inventories had contracted. Similarly, South Korea’s first 10 days of Jun
growth in exports of semiconductors, which is an early indicator of the health of the
electronics industry, is lower at 0.8% yoy (vs. May’s 10.8% yoy). This suggests the
possibility of more modest industry growth ahead as global demand cools.
Global slowdown expected to bite
Given Singapore’s position at the centre of the global supply chain, its export numbers may
be the canary in the coal mine to signal a possible slowdown in global demand. Thus far,
this has not been obvious, but we may be at a crucial turning point. Although a pickup in
China post reopening in Jun could offset the moderation from the rest of the world in the
short term, we fear a slowdown in the US and Europe will likely become increasingly
evident towards the later part of the year as consumer spending runs out of steam amid
aggressive rate hikes.