Singapore factory output grows 0.5% in August, beating economists’ estimates

SINGAPORE’S factory output expanded by 0.5 per cent on the year in August, down from a revised 0.8 per cent growth in July, according to data from the Singapore Economic Development Board (EDB) on Monday (Sep 26). The month’s figures, while an 11-month low, outperformed median estimates of a Bloomberg poll of private-sector economists, who had expected a 0.7 per cent contraction.

However, excluding the volatile biomedical cluster, factory output shrank by 1.2 per cent, compared to a 3.1 per cent increase in the preceding month. August’s ex-biomedical reading is “the first negative print since November 2020 ... reinforcing our view for a softer industrial production growth for the whole of this year”, said RHB senior economist Barnabas Gan. 

These figures came as declines were recorded in the key electronics cluster and chemicals cluster. They are the latest in a weakening manufacturing outlook, with Singapore’s purchasing managers’ index having fallen in August to the 50.0 border between expansion and contraction, similarly dragged down by electronics.

“Electronics is clearly losing steam,” said OCBC chief economist Selena Ling. The linchpin cluster recorded a 7.8 per cent contraction year on year, against a 5.9 per cent contraction in July. The cluster was dragged down by declines in all segments on the back of softening demand.

The other electronic modules and components segment shrank most significantly (-19.3 per cent), followed by infocomms and consumer electronics (-11.7 per cent), semiconductors (-6.6 per cent), and computer peripherals and data storage (-5.3 per cent).

“Anecdotally, more global tech firms are embarking on cost-cutting and/or staff layoffs amid the global economic headwinds including recession fears and challenging market conditions, and chipmakers are bracing for further demand pullbacks,” Ling said.

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Also seeing a contraction was the chemicals cluster (-11.2 per cent), reversing the 5.7 per cent growth in July.

The petroleum segment grew on account of higher demand for jet fuel driven by the relaxation of global air travel restrictions. Conversely, output of the specialties segment declined on lower production of mineral oil additives and industrial gases, while output of the other chemicals segment fell due to lower output of fragrances. Plant maintenance shutdowns also led to a contraction in the petrochemicals segment.

However, a majority of the clusters saw growth, with most in the double-digits.

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Output grew year on year for:

• Transport engineering (32.8 per cent)
• General manufacturing (18.8 per cent)
• Biomedical manufacturing (11.1 per cent)
• Precision engineering (2.9 per cent)

In August, biomedical manufacturing reversed from a decline in the previous 3 months, with the medical technology segment seeing expansion (18.9 per cent) from a year ago on the back of higher demand for medical devices from the United States and China and pharmaceutical production also on the rise (6.4 per cent).

Ling cautioned: “However, it may too early to tell if the pharmaceutical industry rebound is sustainable and the industry output is already down 10.5 per cent for January-August this year.”

On a seasonally adjusted, monthly basis, manufacturing output reversed from the previous 2 months of contraction to grow 2 per cent in August. Barclays economist Brian Tan attributed the growth to a rebound in biomedical segment output, which surged 17.7 per cent on the month. Excluding biomedical manufacturing, factory output fell by 2.9 per cent.

Tan noted that electronics output also rose month on month in August, but the increase was not sufficient to offset the contraction in July, which had followed a drop in June.

“Production has been relatively choppy this year, and our estimates suggest seasonally adjusted levels of electronics output have sunk well below trend,” he said.

For the year to date, overall manufacturing grew by 4.4 per cent year on year, or 5.9 per cent excluding biomedical manufacturing.

Analysts agreed that the manufacturing slump is expected to persist, as positive momentum in the transport engineering and general manufacturing industries will be offset by downturns in other clusters that are “heavy lifters”.

Ling said that “it would not surprise if industrial production actually contracts in the remaining months of this year and drags the full-year 2022 growth to below the 3 per cent handle closer to around 2.5 per cent year on year”, as growing recession fears, aggressive frontloading of monetary policy tightening and the ensuing market upheaval dampen business and consumer confidence.

UOB maintains its 4.5 per cent manufacturing growth forecast for this year, but expects the sector to contract by 3.7 per cent in 2023 on the faltering electronics outlook and weaker external demand, said senior economist Alvin Liew.

RHB, meanwhile, downgraded its Singapore manufacturing full-year growth outlook to 4 per cent this year, from 5 per cent previously.

Looking forward, Barclays’ Tan said that gross domestic product (GDP) growth is on track to moderate to 3.8 per cent year on year in Q3 from 4.4 per cent in Q2, despite a likely slowdown in Q3 manufacturing activity, as services activity continues to recover on easing of social distancing measures and lifting of international travel restrictions. It maintained its 3.7 per cent GDP forecast for the year, in the upper half of the official 3 to 4 per cent forecast range.

UOB also held its 2022 GDP growth forecast at 3.5 per cent even as Liew noted downside risks to its GDP growth projection next year.

Maybank analysts Chua Hak Bin and Lee Ju Ye, in contrast, expect GDP growth to record “a significant slowdown” from Q2 in Q3, with the quarter’s flash GDP at around 2.2 per cent.

“Singapore is tipping on the edge of a technical recession,” they said, maintaining their 2.8 per cent GDP growth forecast for 2022.

“We expect MTI (Ministry of Trade and Industry) to downgrade the full year GDP forecast to 2.5 per cent to 3 per cent at the next review.”