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Singapore's Q3 manufacturing decline milder than feared; factory recovery expected in 2020

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Economic growth in the third quarter was spurred by a better-than-expected showing from Singapore factories, according to data on Thursday morning, as the gross domestic product picked up by 0.5 per cent year on year.

ECONOMIC growth in the third quarter was spurred by a better-than-expected showing from Singapore factories, according to data on Thursday morning, as the gross domestic product picked up by 0.5 per cent year on year.

The beleaguered manufacturing sector, which has shown signs of bottoming out, contracted by 1.7 per cent year on year - less severe than the 3.5 per cent decline indicated in flash estimates and easing from the previous quarter's 3.3 per cent slide. On a seasonally adjusted, quarterly basis, manufacturing was up by 7.6 per cent.

Electronics was the only segment to contract, on the back of lower semiconductor output, with all other manufacturing clusters in the black, led by biomedical production.

The Ministry of Trade and Industry (MTI) said, giving its outlook for 2020: "The manufacturing sector is expected to return to positive growth, led by a gradual recovery in the electronics and precision engineering clusters."

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ANZ’s Greater China economists had said on Wednesday that the global electronics cycle could turn around in 2020 as the roll-out of 5G wireless technology drives chip demand.

“A meaningful turnaround, if sustained, would translate into value gains across the region’s supply chain,” they wrote in their report on Asia’s electronics industry. “It could also show in the exports and growth trends of tech-heavy Asian economies, over the next few quarters.”

But the ANZ economists also suggested that Singapore and South Korea are still faring more poorly than two other key tech markets in Asia, Taiwan and Vietnam.

Meanwhile, with domestic industries having provided support amid an external slowdown, the services sector grew by 0.9 per cent year on year, easing up from revised 1.2 per cent in the second quarter, and in line with the 0.9 per cent growth in advance data.

On a quarterly basis, services rose by 0.4 per cent against the three months prior, after losing 1.4 per cent in the quarter before.

The finance and insurance segment, as well as information and communications, again led the gains. Finance and insurance expanded by 4.3 per cent year on year, buoyed by payments processing, while the infocomm industry grew by 3.4 per cent on IT solutions demand.

But other service industries with more exposure to the outside world continued to struggle: Wholesale and retail trade together lost 3.3 per cent year on year, after contracting by 3.5 per cent in the second quarter, while transport and storage was flat, dragged down by falling sea cargo volumes, after 2.4 per cent growth in the quarter before.

Year-on-year construction growth rose to 2.9 per cent, up from 2.8 per cent in the second quarter and better than the 2.7 per cent in the flash estimates. It dipped by 0.1 per cent on a quarterly basis, improving from the previous 5.5 per cent drop.

The construction sector had returned to positive territory at the start of 2019, after 10 straight quarters in the red.

"On balance, given the growth outlook for Singapore's key final demand markets, and the projected recovery in the global electronics cycle in the year ahead, MTI expects growth in the Singapore economy to pick up modestly in 2020 as compared (with) 2019," the ministry said.