Singapore's manufacturing, services firms pessimistic about next six months amid pandemic

WITH the ongoing Covid-19 outbreak, manufacturing and services firms in Singapore have turned grimmer about business conditions in the next six months, according to two separate surveys released on Thursday.

Compared with the previous quarterly surveys, manufacturing sentiment swung from optimistic to pessimistic, while services pessimism deepened greatly. Covering firms' expectations for April till September, the surveys were released by the Economic Development Board (EDB) for the manufacturing sector and the Department of Statistics (Singstat) for services.

In manufacturing, business sentiment turned sharply negative, with a net weighted balance of 56 per cent seeing worse conditions ahead, compared to the first three months of the year. This was in contrast to the previous quarterly survey, when manufacturers had been hopeful that the industry would do better in the first half of 2020, with a net weighted balance of 12 per cent being optimistic.

The net weighted balance is the difference between the share of firms expecting business conditions to improve - a weighted 4 per cent, in the latest survey - and those expecting them to worsen, which was 60 per cent.

All clusters in the manufacturing sector expect a less favourable operating environment in the next six months, due to weakened external demand and supply chain disruptions as countries impose restrictions to tackle the pandemic.

Least optimistic were the transport engineering and electronics clusters, with net weighted balances of -79 per cent and -75 per cent respectively, given global travel restrictions and the oil price crash.

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Computer peripherals and data storage was the only segment in electronics - and indeed, in the entire survey - with a positive net weighted balance (+7 per cent). Semiconductors were by far the gloomiest, at -87 per cent, as the Covid-19 outbreak derails a previously-expected recovery in the global electronic industry.

The precision engineering cluster, though associated with electronics manufacturing, was less dire in sentiment at -12 per cent. The volatile biomedical manufacturing cluster had a net weighted balance of -67 per cent, while general manufacturing's figure was -47 per cent, and that of chemicals, -25 per cent.

For the second quarter of the year, a net weighted balance of 32 per cent of manufacturers expect lower output compared to the first quarter. All clusters expect lower output levels.

Though biomedical manufacturing boosted March's industrial production figures, a net weighted balance of 44 per cent in the cluster expect output to fall in the coming quarter. The pharmaceuticals segment expects a fall in production of active pharmaceutical ingredients and biological products - which made a strong showing in March - due in part to disruptions in the supply of raw materials.

Employment forecasts were less dire. Most manufacturers (84 per cent) expect the employment level in Q2 to remain similar to that in Q1, at 84 per cent. A net weighted balance of 10 per cent of manufacturers plan to hire fewer workers in Q2 compared to Q1.

A weighted 52 per cent of manufacturers said there were limiting factors that would affect their ability to obtain export orders in Q2, with the top two factors cited being the Covid-19 outbreak, and political or economic conditions overseas, such as the lingering risk of trade tensions between the US and China.

Nonetheless, a weighted 66 per cent still plan to invest in plant and machinery in the next 12 months through March 2021, mainly for the replacement of worn-out equipment and installation of new production technology.

In services, the mild pessimism from a quarter ago has deepened, with the net weighted balance deteriorating from -2 per cent to -58 per cent in the latest survey.

All industries expect a decline in business activity, with the gloomiest being accommodation, food and beverage services, and retail trade, all of which have been hit by the pandemic and associated restrictions.

Information and communications was the least pessimistic, though still with a net weighted balance of -21 per cent. Within this industry, however, the software publishing segment was positive about the coming six months.

For the second quarter, 55 per cent of firms surveyed expect operating receipts to fall, with only 2 per cent expecting them to improve. Accommodation, food and beverage services, and retail trade were gloomiest about expected takings.

The services employment forecast was gloomier than in manufacturing, with a net weighted balance of -24 per cent. In particular, the accommodation sector - harshly hit by the collapse in global travel - strongly expects to reduce hiring, with a net weighted balance of -56 per cent.