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Recent Divergence in Singapore's Electronics Output and Domestic Exports Growth
20 February 2014
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Exhibit 1 shows Singapore’s electronics Index of Industrial Production (IIP) and electronics domestic exports (DX).
While electronics IIP and DX changes tend to track each other over time, there had been instances when divergences occurred. For the most recent case, the divergence occurred from the second quarter of 2013, where electronics output started to recover after several quarters of contraction but electronics DX remained weak. Even after deflating the electronics DX with export prices to obtain real electronics DX, the divergence between electronics output and electronics DX growth still exists.
In general, the electronics IIP and electronics DX can diverge depending on the production andexport decisions of firms, in response to changing market conditions or operational needs. For instance, the current divergence can be partly explained by a build-up of inventories by electronics firms, in anticipation of stronger demand in the coming months, as well as firm-specific factors where some electronics wholesale firms saw weak DX performance over the period. Increasingly, with production chain fragmentation, electronics firms may also decide to locate their high value-added activities, such as design, in Singapore and outsource lower value-added production activities to overseas contract manufacturers. While such activities are captured as Singapore’s electronics output, there may not be a corresponding increase in electronics NODX.