August NODX crash could drag full-year results below 4%

NODX's worst decline in a year suggests graver-than-expected weakness in global demand.

Here's more from OSK-DMG:

NODX suffered its largest plunge since Oct 2011, declining by 10.6% yoy in Aug. This was worst that what consensus and we were expecting. The weakness in NODX was broad-based with both electronics and non-electronics shipments down by 11.0% and 10.4% yoy respectively. It also did not help that base effects were unfavorable.

The decline in electronics NODX was the first since Jan 2012 and was also broad-based with all segments recording negative growth in the month unlike in Jul where there were some support from ICs and parts of ICs. Non-electronics NODX was dragged down by the drop in pharmaceutical shipments (Aug: -3.2% yoy vs. Jul: 1.3%) and also by a moderation in petrochemical shipment, which rose by just 1.3% yoy in Aug vs. 11.4% in Jul. In terms of export destination, shipments to the EU fell 28.7% yoy in Aug as compared to -1.5% in Jul, which was the largest drop since Oct 2011. Also disappointing were shipments to China and Malaysia, which dropped 4.4% and 5.6% yoy in Aug respectively. The bright spot was the US, where after four months of decline, shipments there returned to positive territory with a 0.7% gain.

The economy’s external sector continues to be hit by the protracted debt woes in the Eurozone and the sluggish growth in the US. Now, it also faces challenges from a slowing Chinese economy. Given the global uncertainty, there is now the possibility that NODX could come in below the 4.0% that we were expecting for the whole year. The weakness in external demand continues to pose downside risks to the Singapore economy and puts our full-year real GDP forecast of 2.6% at risk. We maintain our 2012 growth forecast for now, pending our review of more data.

As for policy, we continue to expect MAS to keep its modest and gradual appreciation stance but remove the slightly steeper slope of the policy band that was implemented in Apr. This is because economic growth is likely to underperform while inflation remains elevated. Nevertheless, the risk of looser policy has increased as global events continue to weigh on the domestic economy. Any moves to loosen policy however would have to be balanced against the need to support growth and to anchor inflation expectations.