Pill-popping market drives non-oil domestic exports

Total exports grew by 9.6% in May, even as electronics exports continued to drop, thanks to the side effects of the pharmaceuticals sector.

Leif Eskesen, Chief Economist for India and ASEAN at HSBC Global Research, said, “NODX up due to spike in pharma exports. Exports should slow in the near term as the global soft patch unfolds. However, things are looking up at home, which will continue to keep the MAS guarded against a further build up in inflation pressures.”

Here’s more:

Facts
Total exports grew in May by 9.6% y-o-y (vs. 4.9 % in April), while non-oil domestic exports (NODX) rose 7.8% y-o-y (vs. -2% y-o-y in April). The growth numbers for NODX were well-above consensus (5.7%) and our less optimistic forecast (2.2%). Moreover, NODX sequential growth accelerated 7.5% (vs. -3.7% in April). In real terms, NODX increased 12% y-o-y (vs. 0.8% in April).

By products, NODX growth for electronics continued to drop (-15% y-o-y vs. -11% in April). Non-electronics exports, on the other hand, saw a significant rise in the growth rate (23% y-o-y vs. 2.6% in April) mainly due to a rapid rebound in the volatile pharmaceuticals (61.8% vs. 48.6% in April).

By markets, growth in NODX destined for the top three markets (EU, US, and China) were buoyant. Exports to Europe (12.3% vs. 13.5% y-o-y in April) remained robust led by pharmaceuticals, ICs and PCs. Shipments to China (7.2% y-o-y vs. 3.1% April) and the US (5.2% y-o-y vs. -5.1% in April) grew significantly led by non-electronics exports. Total shipments to Japan declined 6.6% vs. 5.4% expansion in the previous month.

Implication
The volatile pharmaceuticals sector has done it again, jacking up exports by a huge margin. However, looking beyond the gyrations in pharmaceuticals, exports of other products such as electronics is slowing.

Further moderation in exports growth can be expected in the near term given the anticipated slowdown in global growth related to the global inventory correction and the Japan-related supply chain disruptions associated with the natural disaster.

Meanwhile, a strong domestic economy is setting the cash registers ringing, which was evident from April’s strong reading for retail sales. Supported by this, overall growth in the economy is expected to remain strong enough to keep capacity tight and inflation pressures lingering. Indeed, these could pick up again as the economy gets a second wind during the latter half of the year.

So, the MAS will need to stand ready to check any build-up in inflation pressures, either by fully utilizing the upside flexibility within the exchange rate band or further adjust policies later in the year.

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