07/02/2012 (The Star) - The pace of growth in December exports is expected to slow further on a year-on-year basis as gloomy global economic forecasts and uncertainty stemming from a recession in the eurozone dampen external demand.

Singapore-based economists told StarBiz that falling commodity prices, which have so far been supporting exports growth, were partly to be blamed for the slower pace of growth, apart from a drop in demand for consumer electronics.

They expected the industrial production index (IPI), an indicator of factory output and overall manufacturing activity, to expand marginally on a year-on-year basis largely due to rushed shipments before the lunar new year, which began on Jan 23.

The Statistics Department will be releasing data on external trade, which includes exports and imports, as well as data on the IPI, on Thursday.

The median estimates of a Bloomberg survey showed exports growing 5.9% after expanding 8% in November while the median estimates for the IPI showed the index edging up 1.8%, after gaining 1.8% in November.

Hongkong and Shanghai Banking Corp Ltd chief economist for India and Asean Leif Eskesen said global economic headwinds would continue to curtail exports with lower demand for commodities to impact prices.

“That in turn will impact factory output although we've to be careful when interpreting data from December's IPI as demand may have increased to cater for shipments rushed forward due to the Chinese New Year period,” he pointed out.

United Overseas Bank Ltd economist, Ho Woei Chen, said slower economic growth in China would mean less support for commodity prices.

“We expect commodity prices to weaken due to lower demand from China,” she said.

Three-month crude palm oil prices have fallen more than 4% since the beginning of the year to RM3,085 per tonne as of last Friday while spot crude oil traded on the Nymex have fallen nearly 6% to just over US$97 per barrel in the same period.

Oversea-Chinese Banking Corp Ltd analyst Barnabas Gan said in a report dated Jan 6, that oil prices were most at risk in an economic slowdown due to its high dependence on global growth.

However, he said the impact on prices was likely to be lagged, given that oil producers could “respond by cutting production quota to support prices while fuel consumption also tends to be rather sticky.”

Similarly, Gan said CPO prices might come under pressure as lower demand weighs on oil prices with CPO prices seen supported via demand for palm oil as an ingredient for food as well as possible supply disruptions from factors such as the weather.