Manufacturing expectations turn pessimistic but services sector still upbeat: surveys

AFTER more than a year of optimism, Singapore’s manufacturers have turned negative about business conditions in the next 6 months – but services firms remain positive, according to separate quarterly surveys on Friday (Jul 29).

Analysts were unsurprised by the divergence, which Maybank economist Chua Hak Bin said “reflects the cross currents from the reopening tailwinds versus global headwinds”. 

A net weighted balance of 8 per cent of manufacturers expect a less favourable business situation from July to December, in contrast to the previous survey in which a net weighted balance of 2 per cent were optimistic, according to a Singapore Economic Development Board (EDB) release. This was the first negative net weighted balance since the last quarter of 2020.

But for services firms, a net weighted balance of 15 per cent are optimistic about the next 6 months, the same as in the previous quarter, found a similar survey by the Department of Statistics (SingStat).

The net weighted balance is the difference between the weighted shares of positive and negative responses, with a positive figure indicating more optimism than pessimism.

Among manufacturers, a weighted balance of 12 per cent expect business conditions to improve, down from 15 per cent in the previous survey. The weighted share of businesses with a negative outlook rose to 20 per cent, from 13 per cent previously.

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Senior economist at DBS Irvin Seah said that a “confluence of factors” including a slowdown in China, supply chain problems and tighter liquidity conditions are weighing down the sector’s prospects.

“Because of the work from home phenomenon, there had been a surge in consumer electronics, and companies globally were intensifying their investment into digital solutions to cope with the pandemic,” he added. “But that unique phase has passed.”

All manufacturing clusters were pessimistic about the next six months, except for transport engineering and precision engineering.

The electronics cluster was the gloomiest, with a net weighted 21 per cent of those surveyed expecting the operating environment to be less favourable. The transport engineering segment remained most optimistic, with 48 per cent anticipating better conditions, up from 33 per cent before.

In transport engineering, the positivity was driven by the aerospace segment, which expects higher demand for aircraft maintenance, repair and overhaul work as global air travel recovers. Firms in the marine and offshore engineering segment also anticipate an increase in global oil and gas activities, on the back of higher crude oil prices, EDB said in its report.

Despite the weaker 6-month outlook, however, most of the manufacturing clusters expect output to rise in the immediate next 3 months, with an overall net weighted balance of 17 per cent of manufacturers projecting an increase. The exception is the chemicals cluster, where a net weighted balance of 8 per cent expect lower output.

The transport engineering and precision engineering clusters were the most upbeat. The precision engineering cluster foresees higher production of semiconductor equipment and higher output of plastic precision components, bonding wire and optical products.

In biomedical manufacturing, while the pharmaceutical segment anticipates higher output of active pharmaceutical ingredients and biological products, the medical technology segment forecasts production to be constrained by global supply chain concerns.

A net weighted balance of 25 per cent of manufacturers expect an increase in hiring activities for the third quarter of 2022, compared to a quarter ago. All clusters expect to hire more workers, with the transport engineering cluster and electronic cluster most optimistic.

In the services industry, meanwhile, all industries expect business conditions to improve for the July to December period, with accommodation and food and beverage services being the most optimistic.

Selena Ling, chief economist and head of treasury research and strategy at OCBC, attributed the rosier outlook to “the return of international visitors and resilient private consumption going out to the seasonal peak periods towards the year-end holidays, as well as the return of more large-scale events such as F1, among others.”

For July to September, a net weighted balance of 15 per cent expect higher operating revenue, in line with the positive general business outlook.

In hiring, all industries within the services sector also expect an increase in employment in the next 3 months, with a net weighted balance of 16 per cent, as they anticipate growing demand.

Maybank’s Chua said: “We think overall GDP (gross domestic product) growth will likely slow down sharply in the second half, as global headwinds will likely overwhelm and douse the reopening tailwind. 

“Some of the trade-related services sectors, including shipping, storage and wholesale trade, will likely report softer sentiment indicators in the coming quarters.”