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Economy

Singapore's exports rise in August, China demand holds

Focus shifts to monetary policy, currency as MAS decision nears

SINGAPORE (Nikkei Markets) -- Singapore's key non-oil exports increased for a fourth straight month in August as shipments of electronics continued to surge, easing concerns that the recovery could wane in coming months in line with slower growth in China.

The stronger-than-expected exports data also raise the possibility the Monetary Authority of Singapore could tighten policy next month by letting the local dollar appreciate against the currencies of its main trading partners.

According to trade agency International Enterprise Singapore, the city-state's core exports rose 17.0% in August from a year ago to a seasonally adjusted 14.7 billion Singapore dollars ($10.9 billion), beating the consensus estimate in a Reuters poll last week for growth around 12%.

August's growth was also higher than the single-digit increases seen in the previous three months.

Singapore tracks non-oil domestic exports as they provide a better gauge of economic activity on the island. This is because prices of refined oil products tend to be volatile, while total exports include the billions of dollars of goods produced elsewhere that are shipped through Singapore's mega container port, the world's second busiest after Shanghai's.

While the city-state's manufacturing sector has benefited in recent quarters from the sustained demand for electronics, many have said that the base for growth remains narrow, especially considering the likelihood of a slowdown in China, Singapore's largest export market.

Manufacturing accounts for about one-fifth of Singapore's trade-dependent economy. Wholesale and retail trade contribute another 14% to GDP, while transportation and storage account for another 7.5%.

Just last week, China released industrial production, fixed asset investment and retail sales data for August that fell short of forecasts.

However, Monday's data from IE Singapore showed that non-oil exports to China surged 43.2% year-on-year in August. Shipments to Hong Kong rose 41.9% and to South Korea, 62%. Overall, exports to nine of Singapore's top 10 markets, grew last month - the exception was Taiwan.

In terms of categories, electronics was the star performer yet again, expanding by 21.7% on-year in August following a rise of 15.3% in July. Non-electronic exports rose 15%, helped by a 31.9% jump in petrochemicals, while pharmaceuticals continued to languish, falling 9.1% from a year ago.

On a seasonally adjusted month-on-month basis, non-oil domestic exports rose by 4.5% in August, reversing the previous month's 3.3% decline.

"With the economy recovering strongly and possibly exceeding the upper bound of the government's 2%-3% forecast range (for 2017), we think the risk is that the MAS will shift and normalize its policy setting to a slight appreciation bias at the mid-October meeting," Maybank Kim Eng economists Chua Hak Bin and Lee Ju Ye wrote in a note to clients.

Maybank Kim Eng expects Singapore's gross domestic product growth to come in around 3.5% to 4% in the third quarter, accelerating from the 2.9% expansion reported for the second quarter.

The possibility that MAS could tighten policy next month was also flagged by Citi, which said the central bank could decide to take action before wage and core inflation pressures show up in historical data, given the long lag in monetary policy transmission.

"With growth near or slightly above potential, along with the lagged impact of past fiscal measures, there is probably room for fiscal policy, and indeed the overall macroeconomic policy mix, to be less expansionary going forward," said Citi economist Kit Wei Zheng.

Instead of setting interest rates, Singapore manages monetary policy by guiding the value of the Singapore dollar against an undisclosed basket of currencies. MAS's current stance is for "zero appreciation," which has been in place since April 2016 when the central bank dropped its policy of allowing a modest and gradual appreciation of the local currency.

--Kevin Lim

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