Singapore's disappointing Aug exports add to Oct easing risk

By Jongwoo Cheon and Masayuki Kitano

SINGAPORE (Reuters) - Singapore's exports fell more in August than expected on a steep decline in sales to China and Europe, adding to the prospects of a further easing by the central bank next month to shield the economy from uneven global growth and to shore up inflation.

Non-oil domestic exports (NODX) slid 8.4 percent in August from a year earlier, trade agency International Enterprise Singapore said in a statement on Thursday.

That compared with a 3.0 percent contraction forecast in a Reuters poll. In July, non-oil domestic exports eased 0.7 percent from a year earlier with shipments to the United States, China and Europe declining.

Exports on the month fell 4.6 percent in August on a seasonally adjusted basis, compared to a 0.5 percent rise predicted in the survey and a 2.5 percent gain in July.

The data came ahead of the Monetary Authority Singapore's semi-annual policy meeting in October.

Recent disappointing economic data such as July factory output stirred concerns over a technical recession and the need for policy easing next month. The central bank has not published the date of the meeting yet.

"Growth is clearly undershooting. Core inflation is still benign for now. So normally that would actually warrant an easing in monetary policy settings, when the central bank actually next meets in October," said Weiwen Ng, an economist for ANZ.

The MAS' policy response, however, is also likely to be constrained by its focus on cost pressures arising from a tight labour market and higher debt servicing costs on rising interest rates, Ng said.

After the disappointing exports data, the Singapore dollar turned weaker, underperforming most other emerging Asian currencies.

Singapore's monetary policy is focused on managing the exchange rate rather than interest rates. Expectations for a softer Singapore dollar can put upward pressure on local interest rates as investors seek higher yields as compensation for holding the weakening currency.

In January, the central bank eased its monetary policy in an off-cycle move, but then left it unchanged in April.

The trade-dependent economy has been suffering from deepening slowdown in major markets such as China.

Non-oil domestic exports to China - Singapore's largest export market - fell 8.2 percent in August from a year earlier. That compared with 1.6 percent contraction in July.

Annual sales to Europe slid 9.0 percent in August, compared with a 1.7 percent fall in July.

Non-oil domestic exports of electronics fell 2.7 percent in August from a year earlier. That compared with a 2.5 percent gain in July.

"The electronics exports has fallen despite a very supportive base from last year. That suggests that to an extent the global impact is starting to come to Singapore now, especially what we are seeing in China," said Vaninder Singh, an economist for RBS.

Singh added that his current expectation is that the MAS will reduce the slope to zero percent at its October policy meeting.

Manufacturing is a key element of Singapore's exports, but it has been underperforming neighbours such as South Korea and Taiwan due to fierce competition and Singapore's lack of popular high-tech products such as smartphones.

Activity in Singapore factories, including the important electronics sector, shrank for a second straight month in August, a survey showed earlier this month.

(Reporting by Jongwoo Cheon and Masayuki Kitano; Editing by Eric Meijer)