China’s economic recovery to foster Singapore’s NODX growth in 2024

US+ASEAN economic indicators and interest rates amongst factors that condition NODX momentum.

The improvement in non-oil domestic exports (NODX) momentum quarter-to-date is expected to persist into year-end and early 2024 while NODX forecast for 2023 is maintained at -12.5%, Barnabas Gan, acting group chief economist for RHB Singapore said in a report.

“We keep our full-year NODX forecast of -12.5% in 2023. Our forecasts for NODX momentum to improve in 2H23 has materialised nicely; global trade activities, on a momentum basis, has already embarked on a recovering trend,” Gan said.

Overall exports staged its first growth print in October at +2.8% YoY, the first positive handle since October 2022 (+5.5% YoY), and translating into a seven-month high trade surplus of $6.2b.

“October’s NODX fell 4.6% YoY, in line with our forecasts and is better than expected against Bloomberg’s consensus of -6.0% YoY. NODX momentum has also improved into October 2023, in line with our outlook made since early 2023,” Gan added.

Export momentum in both electronic and non-electronic shipments also improved in October, led by higher exports of pharmaceuticals (+13.5% YoY), petrochemicals (+3.4% YoY), telecommunication equipment (+37.6% YoY) and consumer electronics (+12.8% YoY). 

The improvement in NODX momentum is contingent on three catalysts such as US+ASEAN economic indicators, central banks peak rate objectives, and China’s economic recovery in 4Q23.

US+ASEAN economic indicators

“US+ASEAN economic indicators continue to show signs of strength, especially seen in US labour, manufacturing and consumption numbers,” Gan asserted.

ASEAN trade numbers have also seen improvements as export momentum significantly accelerates in China. Moreover, global equities also increased quarter-to-date, indicating an improvement in investor’s risk appetite.

Gan noted that these improvements will benefit Singapore “on a relatively rosier backdrop” should it persist into early 2024.

“The continued momentum recovery in Singapore’s externally-facing industries reinforces our outlook for Singapore’s annual growth forecasts for 2023 and 2024 at 1.5% and 3.0%, respectively,” Gan said.

In addition, Gan expects positive YoY prints for the remainder of 2023, following their recorded NODX and IPI forecasts of -12.5% and -0.4% respectively.

However, Singapore inflation pressures and a decline in global semiconductor demand which has “empirically supported Singapore’s industrial production activities” may pose a  threat to this growth.

Central banks peak rate objectives

Gan also believes that key central banks are approaching, or at, their peak rate objectives. “Our peak Fed Funds Rate (FFR) forecast stands at 5.5- 5.75% in December 2023, with the balance of risk for the Fed to keep its policy parameters unchanged.”

US near-peak rates are expected to cap rates both in the US and across ASEAN. Meanwhile, Singapore’s interest rates is seen to be approaching its peak as well, treading closely with US interest rate trends.

Nevertheless, Gan anticipates US rates to normalise lower in 2H24 which may eventually lead to lower and investment costs across ASEAN. This may spur the region’s externally-facing industries such as manufacturing and exports. 

China’s economic recovery

“We are cautiously optimistic on China, whereby an economic recovery in 2024 will be a credible boon to ASEAN and Singapore’s growth in the coming year,” Gan said.

China’s economic recovery will spark benefits for ASEAN as it will allow for a more robust trade and tourism prognosis. Singapore’s electronic, transport, and chemicals industries will also boost following China’s continuous demand since the last decade.

Singapore’s NODX to China surged 38.5% YoY in October, up from 26.2% YoY in September and the fastest pace since November 2011. 

“We still hold some caution on the Chinese recovery numbers, given the ongoing stress in the economy’s property sector,” Gan added.