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HOPES of a smooth recovery in Singapore's manufacturing sector in the second half of the year may continue to be elusive as underlying growth momentum remains sluggish.
Singapore's manufacturing sector contracted for the fifth straight month in June, with industrial output shrinking 4.4 per cent on a year-on-year basis, due to broad-based declines in all clusters save chemicals. Excluding biomedical output, industrial production would have contracted 5.3 per cent.
DBS economist Irvin Seah calls this "an utterly poor outcome" which is very much lower than the projection of about 1.8 per cent on-year decline projected in recent advance gross domestic product (GDP) estimates for Q2 2015.
Mizuho economist Vishnu Varathan noted that aggregate demand conditions in the advanced economies including the United States, Europe and Japan remain weaker than previously hoped for.
"But equally, we are not unduly bearish given that the bigger picture is one of continued improvement in the US (albeit gradual) and China's suite of policy stimulus kicking in to help with stabilisation," he added.
CIMB Private Bank economist Song Seng Wun pointed to worries of a slowdown in the world's second largest economy as China's flash manufacturing purchasing manager's index (PMI) tumbled to a 15-month low in July. "Unless we see a meaningful recovery in the world (economy), recovery here in the next few months is doubtful."
Echoing his sentiments, UOB economist Francis Tan noted that the manufacturing sector is experiencing the third consecutive quarter of on-year contraction, and the poor showing is expected to remain.
Data released by the Singapore Economic Development Board (EDB) on Friday said that output of all other clusters fell except chemicals, which grew 4.2 per cent.
The biomedical manufacturing cluster recorded the smallest decline of 0.6 per cent in June, cushioned somewhat by the medical technology segment.
Output of the electronics cluster fell 2.1 per cent, weighed down by the semiconductor segment.
The worst performer was the transport engineering cluster, plummeting 17.5 per cent year-on-year in June, dragged by weak demand for engine repair jobs in the aerospace segment (-15.7 per cent), and lower levels of rig building and shipbuilding & conversion activities in the marine & offshore engineering segment (-21.7 per cent).
Output of precision engineering and general manufacturing clusters contracted 5 per cent and 3.3 per cent, respectively.
EDB said that after adjusting for seasonal factors, industrial production dropped 3.3 per cent month-on-month in June. Excluding biomedical manufacturing, output fell 4.6 per cent.
Given June's numbers, economists have lowered their estimates for Q2 GDP on-year growth to 1.5 per cent from the advance estimate of 1.7 per cent. Citi anticipates the downward revision to be "the sharpest sequential drop since Q3 2012".
But ANZ Research said that the services sector may provide some offsetting support against a struggling manufacturing sector, and that this will likely be led by the finance and insurance segment.