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Quick Takes: Economists say 8.7% y-o-y drop in April manufacturing could mean weaker Q2 GDP
SINGAPORE'S manufacturing output fell 8.7 per cent year-on-year in April - a third straight month of contraction and the sharpest in more than two years. Here's what some economists had to say about the outlook for the manufacturing sector and Singapore's economy, given Tuesday's industrial output report:
JPMorgan economist Benjamin Shatil noted that in sequential (month-on-month) terms, electronics output continued to fall, even though it rose 1.2 per cent year-on-year:
"The hope was that new tech product launches would provide some support to electronics production in early Q2, but last week's trade data and production reports from other emerging market Asian exporters are sending no clear signal of lift in the region. Outside of tech, the various engineering and other manufacturing sectors all contracted on the month, with only chemical output inching up 0.2 per cent month-on-month after seasonal adjustment. Sequential trend rates for the majority of clusters are now printing double-digit contractions.
"Rising headwinds on growth reflect both domestic labour constraints that look to be dampening the impact of any cyclical lift in external demand, as well as longer-term structural shifts in the manufacturing sector that have seen Singapore lose market share to other regional exporters, including Vietnam."
Credit Suisse economist Michael Wan says that manufacturing may not remain this weak, but thinks this foreshadows moderation in Q2 GDP:
"We expect some of this weakness in industrial production (IP) to reverse in the coming month, as the volatile biomedical sector was one of the drivers behind the soft print. The April IP print suggests that 2Q '15 GDP should moderate from 1Q, or maybe even contract on a quarter-on-quarter basis."