Export turnaround bodes well for Singapore recovery, says Oxford Economics

The improved global growth outlook will underpin a strong rebound in re-exports and sustain solid growth in non-oil domestic exports for Singapore in 2021. Exports will contribute significantly to Singapore’s GDP growth this year, according to Oxford Economics.

05, Apr. 2021

Economist Sung Eun Jung of Oxford Economics foresees Singapore's gross exports growing 6.1 percent in 2021, up from 3.1 percent in 2020, and adding 8.2 percentage points to GDP growth this year. (Photo courtesy of Sung Eun Jung)
Economist Sung Eun Jung of Oxford Economics foresees Singapore's gross exports growing 6.1 percent in 2021, up from 3.1 percent in 2020, and adding 8.2 percentage points to GDP growth this year. (Photo courtesy of Sung Eun Jung)

By Sung Eun Jung

Weak imports, rather than strong exports, boosted Singapore’s growth last year.

Indeed, its goods exports lagged those of regional peers. But exports have started to rebound as the global vaccine rollout has boosted hopes for a global growth recovery.

We expect the improved external environment to boost exports this year and support Singapore’s growth recovery. Its role as a global trading hub, its composition of exports, and the plunge in oil prices negatively affected overall exports last year. We think these factors will become more favorable and support stronger exports in 2021.

A sharp decline in global activities due to the pandemic last year hit Singapore especially hard given its unique role as an intermediary trading hub. Re-exports, meaning goods that are exported in the same form as they have been imported, account for almost half of Singapore’s total goods exports.

While weak external demand inevitably hurts overall exports, domestic exports are likely to respond more flexibly to changing demands than re-exports given the greater involvement of domestic industries. Indeed, a relatively strong performance of non-oil domestic exports (NODX) partially offset weak oil exports and re-exports in 2020.

Close to 70 percent of Singapore’s re-exports are in machinery and transport equipment, which are sensitive to swings in business sentiment. Domestic exports are more diverse, which helped cushion the pandemic’s impact on exports last year. For instance, pharmaceutical exports soared in H1 2020. After losing some momentum in Q4, non-oil domestic exports started 2021 with solid growth.

Singapore’s exports to the ASEAN-5 bloc (27 percent of total exports) fell significantly, weighing on total exports, even as shipments to the US (8 percent) and China (12 percent) largely held up.

Importantly, accounting for prices, Singapore’s total export volumes performed better than those of regional peers in H1 2020. The drop in oil prices was the primary factor behind Singapore’s weak export price dynamics in 2020. Notwithstanding the slow recovery in H2 2020, the latest data suggests that Singapore’s export volumes are on a solid upward trend.

We forecast the improved global growth outlook will underpin a strong rebound in re-exports, fueling Singapore’s export recovery in 2021. Re-exports have continued to recover from the sharp fall in Q2 2020 and surpassed Q4 2019 levels in Q4 2020.

Three-quarters of electronics exports are re-exports, which supported a turnaround in re-exports in H2 2020. We expect demand for electronics to remain solid this year.

We also expect non-oil domestic export volumes to see strong growth of 6.5 percent this year after expanding 7 percent in 2020.

Some of the forces behind NODX’s outperformance last year, such as the sentiment-driven demand for gold exports, may prove temporary.

But a recent pickup in machinery and equipment exports (40 percent of NODX) momentum should support NODX growth in 2021. Higher oil prices and a gradual recovery in transport should also bolster oil exports this year, which are mostly traded as domestic exports due to the large oil refinery sector in Singapore.

We forecast gross exports will grow 6.1 percent in 2021, up from 3.1 percent in 2020, and add 8.2 percentage points (ppts) to GDP growth this year. The high contribution is largely a result of re-exports, which boost the share of total exports in GDP to more than 120 percent.

By their nature, they also have a large foreign value-added (VA) component. It is therefore important to calculate the contribution from domestic VA in exports to assess the impact on GDP growth. Adjusting for foreign VA, we estimate that goods exports contributed 1.3 percentage points to GDP growth in 2020.

We forecast this contribution will rise to 1.7ppts in 2021. Alongside a rebound in domestic demand, this should lift GDP growth to 6 percent this year, following a 5.4 percent contraction in 2020.

Singapore’s imports track exports growth closely due to the significance of re-exports. But imports fell more than exports last year as domestic demand plunged during the strict lockdown in Q2.

As activities normalize, we forecast the trade surplus will narrow modestly to 26 percent of GDP in 2021 from 27.5 percent in 2020. We still expect the large surplus in goods and services trade will offset the income deficits in the short to medium term.

A favorable global industrial outlook supports our view. Overall, we forecast a broadly unchanged current account surplus of 17.5 percent of GDP in 2021 from 17.6 percent in 2020, before narrowing slightly to 17.2 percent in 2022.

*Sung Eun Jung is an economist at Oxford Economics, a global leader in economic forecasting, quantitative analysis. A macroeconomist with a strong data analytic and research background, Sung has covered the economies of China, Australia, Southeast Asia, and G20 countries.