Singapore manufacturing, services sentiment turns gloomier for H1 2019

MANUFACTURING and services firms have grown more downbeat about their business prospects in the first half of this year, with both sectors now expressing overall pessimism, according to two separate surveys released on Thursday.

The surveys, covering firms' expectations for January till June 2019, were released by the Economic Development Board (EDB) for the manufacturing sector and the Department of Statistics (Singstat) for services.

Most manufacturers expect business conditions in these six months to remain similar to those of the fourth quarter of 2018, with a weighted 76 per cent holding this view. However, only a weighted 5 per cent expect conditions to improve, while a weighted 19 per cent see them weakening.

This yields an overall net weighted balance of 14 per cent expecting poorer conditions - a stark worsening of sentiment compared to the previous Q4 survey, where a net weighted balance of 1 per cent of manufacturers expected a softer business outlook for the October 2018 to March 2019 period.

In the services sector, most firms also expect business activity to remain the same, with a weighted 12 per cent being optimistic and a weighted 16 per cent foreseeing slower business. This makes for a net weighted balance of 4 per cent of firms expecting worse business conditions in the first half of 2019 compared to the second half of 2018.

This marks a more pessimistic outlook compared to the positive net weighted balance of 3 per cent recorded in the previous quarter's survey. But Singstat said this was due partly to a seasonal effect, noting that the Q1 2018 survey saw a similar dip in sentiment. 

Within the manufacturing sector, the biomedical manufacturing and the transport engineering clusters were upbeat about the first half of 2019. In biomedical manufacturing, a net weighted balance of 6 per cent of firms see a favourable operating environment in the next six months, due largely to the medical technology segment's expectation that export orders will stay strong.

In transport engineering cluster, a net weighted balance of 4 per cent expect business conditions to improve, led mainly by the marine offshore engineering segment which anticipates a continual modest uptick in demand for oil and gas-field equipment and ship repairing activities, though offshore rig orders remain subdued.

In contrast, the other manufacturing clusters had negative net weighted balances, with more pessimistic than optimistic firms. Most downbeat were electronics firms, with a net weighted balance of -45 per cent, and precision engineering, with a net weighted balance of -24 per cent. Both clusters expect weaker orders amid softening demand for semiconductors and semiconductor-related equipment, amid growing concerns over global trade tensions.

Output expectations for the first quarter of 2019 are slightly pessimistic, with a net weighted balance of 2 per cent of manufacturers expecting output decline compared to the fourth quarter of 2018. Biomedical manufacturing is most optimistic with a net weighted balance of 35 per cent expecting higher output levels in the first quarter. Transporting engineering also had a net weighted average of 18 per cent expecting more activity in this quarter. The chemicals cluster had a modest optimistic net weighted average of 2 per cent.

In contrast, the electronics, precision engineering and general manufacturing industries clusters expect output to fall quarter-on-quarter. The EDB attributed the weaker production outlook for the former two clusters mainly to the global semiconductor slowdown and uncertainties from trade tensions. For general manufacturing, firms are expecting seasonally lower output.

On the employment front, a weighted 84 per cent of manufacturers expect employment levels to remain steady quarter-on-quarter in Q1 2019. With the electronics, precision engineering and general manufacturing industries clusters expect to hire fewer workers compared to Q4 2018. The overall net weighted balance for the sector's employment change is a negative 2 per cent.

As for export orders in the first quarter, a weighted 75 per cent of manufacturers see no constraints on their ability to obtain export orders, but a weighted 22 per cent of firms cited price competition from overseas competitors and political or economic conditions abroad as the top two limiting factors.

In the services sector, the optimistic industries included information and communications and food and beverage services, while pessimistic industries comprised accommodation, transport and storage, and wholesale trade.

In information and communications, firms engaged in computer consultancy and web portal services were most upbeat. In food and beverage, fast food outlets and food caterers are among those expecting business to improve.

In contrast, accommodation firms are less optimistic about H1 2019's business prospects compared to H2 2018, "which coincided with the year-end holiday and festive period", said Singstat. Within transport and storage, air transport firms in particular expect lower demand in H1 2019, compared to H2 2018 which included the year-end school holidays.

Meanwhile, wholesalers as well as banks and finance companies are pessimistic about the first half of 2019 as they expect the ongoing trade conflict between the United States and China to have a negative impact on their business.