Yahoo Finance Singapore's manufacturing output moderates further to 0.5% in August
Excluding biomedical manufacturing, August’s output fell by 1.2% y-o-y.
Singapore’s manufacturing output increased by 0.5% y-o-y in August, moderating from the 2.2% growth seen in June and the 0.6% growth in July.
Despite the figure, which marked the slowest y-o-y growth since September 2021, August’s figure marks an improvement in m-o-m terms after two straight months of contraction. The y-o-y growth also surprised Bloomberg’s forecast for a 0.7% contraction print.
The main drags during the month were due to the electronics and chemical clusters, which registered y-o-y declines of 7.8% and 11.2% respectively. These were mitigated by the y-o-y growths seen in the rest of the clusters.
Excluding biomedical manufacturing, August’s output fell by 1.2% y-o-y.
On a seasonally adjusted m-o-m basis, manufacturing output grew by 2.0%. Output, however, declined 2.9% m-o-m excluding biomedical manufacturing.
In August, transport engineering saw the highest growth with output increasing by 32.8% y-o-y. This was thanks to the growth in the marine & offshore engineering segment and the aerospace segment, which were supported by a higher level of work done in ship repair and offshore projects and higher demand for aircraft parts from the US and more maintenance, repair and overhaul jobs from commercial airlines.
Output for the general manufacturing cluster grew by 18.8% y-o-y in August with all segments registering output growths. The food, beverage & tobacco segment expanded on account of higher output of beverage and dairy products, whereas the miscellaneous industries and printing segments grew due to the former recording higher production of structural metal products, wearing apparel and paperboard containers.
Output for the biomedical manufacturing cluster increased by 11.1% y-o-y with both segments seeing growths in their output. The medical technology segment expanded due to higher demand for medical devices from the US and China, while the pharmaceuticals segment grew due to a different mix of active pharmaceutical ingredients being produced.
The precision engineering cluster saw output grow by 2.9% y-o-y due to the higher output in the machinery & systems segment, which grew on account of higher output of semiconductor related equipment. Output of the precision modules and components segment, however, fell due to the lower production of optical products, electronic connectors and bonding wire.
Output for the electronics cluster fell by 7.8% y-o-y with all segments logging y-o-y declines on the back of softening demand.
Output for the chemicals cluster fell by 11.2% y-o-y due to the declines in output of the specialties and other chemicals segments, as well as the petrochemicals segment. The specialties segment recorded lower production of mineral oil additives and industrial gases while the other chemicals segment reported lower output of fragrances. The decline in the petrochemicals segment contracted due to plant maintenance shutdowns. Output for the petroleum segment, on the other hand, increased by 8.1% y-o-y on account of higher demand for jet fuel driven by the relaxation of global air travel restrictions.
On a three-month moving average basis, manufacturing output rose 1.3% y-o-y in August.
RHB Group Research’s senior economist Barnabas Gan has downgraded his full-year growth outlook for Singapore to 4.0% in 2022 from his previous outlook of 5.0%.
Noting the 1.2% y-o-y contraction which excludes the volatile biomedical manufacturing output, Gan notes that this is the first negative print since November 2020, which reinforces his view for a softer industrial production growth for the whole of this year.
“Momentum-wise, the electronic sector came in at -6.2% m-o-m on a seasonally adjusted basis (three-month moving average), the weakest since the Global Financial Crisis (GFC) in January 2009 [at] -11.0%),” he writes.
In his report, Gan has kept his GDP growth estimate at 3.2% y-o-y “with the balance of risks tilted to the upside against Bloomberg’s forecast of 3.6%.”
The upside risks may stem from the return of tourism and retail sales; services is likely to be the lynchpin of growth in 2H2022.
“Specifically, real retail sales expanded for 16 sessions out of the previous 18 readings (February 2021 – July 2022), supported by the return of visitor arrivals which expanded for 17 straight months (April 2021 – August 2022). Note that visitor arrivals have grown by almost 45 times August 2021’s levels, during which Singapore was just at her infancy stages of opening borders,” he says.
“With services accounting for over 60% of GDP in 2021, it will undoubtedly support GDP growth in 2H22, especially given the likelihood for retail sales and visitor arrivals to stay robust till end-year. Other key drivers for services will also include the resumption of the F1 Singapore 2022 Grand Prix (from Sept 30 to Oct 2), the Great Singapore Sale (Sept 9 – Oct 10) and the front-loading of retail demand before a GST rate increase in 2023,” he adds.
UOB’s senior economist Alvin Liew is keeping his manufacturing growth forecast at 4.5% in 2022, but he expects the sector to contract by 3.7% in 2023 due to the “faltering outlook for electronics and weaker external demand”.
“We continue to be cautiously positive on the outlook for transport engineering, general manufacturing, and precision engineering, to support overall industrial production growth but we see a weaker electronics performance and slowing demand from North Asian and key developed economies that could increasingly weigh on non-oil domestic exports (NODX) momentum and manufacturing demand,” he writes.
“In the same vein, our 2022 GDP growth forecasts are also unchanged at 3.5% but the faltering 2023 manufacturing outlook indicates the downside risk to our GDP growth projection next year,” he adds
OCBC’s chief economist and head of treasury research and strategy, Selena Ling, noted that electronics is “clearly losing steam” with the cluster’s output in August slumping for the second straight month.
“Anecdotally, more global tech firms are embarking on cost-cutting and/or staff layoffs amid the global economic headwinds including recession fears and challenging market conditions, and chipmakers are bracing for further demand pullbacks,” Ling says.
On the biomedical cluster, which saw the pharmaceuticals industry seeing a 6.4% y-o-y growth in output, Ling writes that it may be too early to tell if the pharmaceutical industry rebound is sustainable and the industry output is already down 10.5% for January-August this year.
Overall, the economist notes that the risk for the manufacturing performance continues to “point south from here” as positive momentum in the transport engineering and general manufacturing industries only contribute a combined index weight of 15.1%. This is in contrast to the heavy lifters like electronics, biomedicals and chemicals which carry 40%, 16.9% and 13.3% weights respectively.
“It would not surprise if production actually contracts in the remaining months of this year and drags the full-year 2022 growth to below the 3% handle closer to around 2.5% y-o-y. The impact on full-year GDP growth is likely to be around 0.1 percentage point lower from our 3.5% y-o-y forecast,” she adds.
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