Optimism for next six months cools for Singapore's manufacturing sector

OPTIMISM in Singapore's manufacturing sector for the next six months has cooled, while positive sentiment for the services sector plateaued, according to quarterly surveys released on Friday.

The data does not come as a surprise given the Republic's return to Phase 2 (Heightened Alert) in late July amid an uptick in the Delta variant of the coronavirus both locally and in our major trading partners, said OCBC Bank head of treasury research and strategy, Selena Ling.

In the manufacturing sector, a net weighted balance of 20 per cent of firms anticipate a favourable business situation for the July to December 2021 period. This was down from 38 per cent in the previous quarter's survey.

The net weighted balance is the difference between the weighted percentages of positive and negative responses - 26 per cent and 6 per cent respectively in the survey by the Singapore Economic Development Board.

"The positive general business outlook suggests manufacturing will likely continue to expand at high single-digit rates in the third quarter," said noted Maybank Kim Eng analyst Chua Hak Bin.

The services sector held steady in terms of optimism compared with the previous quarter. Just like in Q2, 20 per cent of firms expect better business conditions in the next six months while 9 per cent foresee slower business conditions - translating to a net weighted balance of 11 per cent being optimistic, the Department of Statistics survey showed.

Most manufacturing sector clusters were optimistic about the next six months, save for the chemicals cluster. A net weighted balance of 24 per cent of firms in this sector expect a less favourable business situation until December 2021.

Firms in the petrochemicals segment indicated concern over product prices and margins - which are foreseen to be "adversely impacted" with new capacities coming on stream in the region.

In contrast, the electronics cluster was once again the most optimistic with a net weighted balance of 40 per cent. This was largely due to the semiconductors and other electronic modules and component segments expecting demand from the 5G market, cloud services and data centres to remain robust.

Next, a net weighted balance of 21 per cent of firms in the transport engineering cluster foresee a positive business environment for the next six months. Aerospace segment firms expect business conditions to improve, anticipating a gradual resumption of regional and domestic flights as more countries step up their vaccination programmes.

The precision engineering cluster had a net weighted balance of 15 per cent of firms projecting a favourable business situation. The semiconductor-related equipment industry led the pack in terms of optimism in the machinery and systems segment, on the back of strong capital investments in the global semiconductor industry.

Meanwhile, optimism in the biomedical manufacturing cluster, which had a net weighted balance of 11 per cent, was largely led by the medical technology segment which continues to project higher export demand for Covid-19 and non-Covid-19 medical devices.

For the July to September 2021 period, a net weighted balance of 9 per cent of manufacturers expect output to increase in the third quarter compared with the second quarter. The chemicals and general manufacturing clusters were the only ones to expect lower output.

As for employment, a majority of manufacturers (a weighted 74 per cent) expect levels to remain similar to the second quarter. Overall, a net weighted balance of 8 per cent plan to hire more workers in the next three months - particularly the electronics and biomedical manufacturing clusters.

When it comes to the services sector, most industries expect business conditions to improve for the July to December 2021 period, compared with the January to June 2021 period. However, the food and beverage (F&B) services and real estate industries expect weaker business conditions ahead. F&B services may have been impacted by the heightened measures, noted Mr Chua.

A net weighted balance of 9 per cent of firms expect operating receipts to rise, foreseeing higher revenue for the third quarter compared with the previous quarter. As for employment, the services sector expects an increase in hiring in Q3 with a net weighted balance of 3 per cent.

"Given that the services sector is the main driver of local jobs, this may imply that improvements in the domestic labour market may be very gradual in the next few months," said OCBC's Ms Ling.

According to Singstat's data, the wholesale trade industry expects both takings and hiring to rise, in anticipation of global trade recovery and increased global vaccination rates respectively.

On the other hand, firms in the administrative and support services industry expect lower turnover and employment in the third quarter in view of lower demand for their services.