Singapore factory output growth eases to 6.8% in July; electronics up 11.2%

[SINGAPORE] Factory output rose 6.8 per cent year on year in July, moderating from June’s revised 7.5 per cent growth, data from the Economic Development Board showed on Wednesday (Aug 26).

This was in line with expectations by private-sector economists who had similarly forecast a 6.8 per cent expansion in a Bloomberg poll.

Excluding the volatile biomedical manufacturing cluster, output increased 8 per cent year on year, slowing from June’s revised 9.9 per cent expansion. 

On a seasonally adjusted monthly basis, output increased 2.3 per cent in July, compared with June’s revised figure of a 7 per cent contraction.

Excluding biomedical manufacturing, output also increased 0.8 per cent, reversing from the revised 10.9 per cent contraction in the previous month. 

Within the manufacturing sector, all clusters recorded output growth on a year-on-year basis in July, except the biomedical manufacturing and chemicals clusters.

Among all manufacturing clusters, the linchpin electronics cluster posted the second-highest growth after precision engineering, with output rising 11.2 per cent in July, down from June’s 21.1 per cent growth.

Growth in the electronics cluster was led by infocomms and consumer electronics (51.7 per cent) and semiconductors (8 per cent) on the back of sustained artificial intelligence-related demand.

This was followed by other electronic modules and components (2.5  per cent) and computer peripherals and data storage (0.8 per cent).

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Near-term AI demand remains intact

Looking ahead, DBS senior economist Chua Han Teng said positive drivers such as global AI demand remain intact, although year-on-year manufacturing growth could moderate in the fourth quarter as it comes up against a higher base of comparison.

He also expects the precision engineering and electronics clusters to remain key drivers of near-term manufacturing growth.

“We expect external demand for Singapore’s electronics and precision engineering exports, including memory chips, server-related products and semiconductor equipment, to remain supported by substantial AI infrastructure investment, particularly that signalled by major US hyperscalers,” Chua said.

However, Standard Chartered economists Edward Lee and Jonathan Koh noted that electronics output fell 3 per cent month on month in July, its second straight decline, driven by lower semiconductor output.

This sequential weakness raises questions over whether the AI investment cycle is beginning to moderate, the economists said, pointing also to a recent correction in US semiconductor stocks.

UOB associate economist Jester Koh similarly saw early signs that AI-related tailwinds could be moderating, though he said more data was needed to confirm this.

He noted that the sequential declines in semiconductor production were consistent with falls in integrated-circuit exports in June and July.

Still, both StanChart and UOB economists pointed to indicators suggesting that underlying demand remains healthy.

StanChart also noted that the electronics new-orders-to-finished-goods ratio rose to 1.08 in July, its highest level in more than eight years, indicating a strong order pipeline. 

UOB’s Koh pointed out that new orders in the electronics purchasing managers’ index continued to outpace output, while firms were drawing down inventories to meet demand.

“This could support electronics (production) in the months ahead, given the eventual need for inventory replenishment,” he said.

Meanwhile, Maybank economists Chua Hak Bin and Brian Lee said the global AI hardware boom was unlikely to stall abruptly even if hyperscalers temper future spending plans.

“Given the long lead times and sizeable sunk costs associated with data centre projects, many facilities already in the pipeline will continue to drive demand for chips, storage and networking equipment,” they said.

Performance by cluster

The precision engineering cluster had the highest year-on-year rise in July at 17.7 per cent.

Within this cluster, machinery and systems expanded 18.2 per cent due to higher production of semiconductor equipment.

Meanwhile, the higher output of optical instruments, electronic connectors and dies, moulds, tools, jigs and fixtures contributed to the 15 per cent growth in the precision modules and components segment.

Output in the transport engineering cluster grew 10.8 per cent, driven by gains in the land (28.5 per cent) and aerospace segments (15.8 per cent).

Aerospace was bolstered by higher production of aircraft parts and sustained maintenance, repair and overhaul jobs from commercial airlines.

The cluster’s overall growth was partially offset by a decline in the marine and offshore engineering segment (minus 2.1 per cent), which recorded lower production of oil and gas field equipment.

General manufacturing expanded 4.9 per cent, driven by a gain in the food, beverages and tobacco segment (10.4 per cent), which produced more beverage and dairy products, and printing (2.7 per cent).

These were offset by a decline in miscellaneous industries (minus 5.9 per cent) due to lower production of structural metal products and furniture.

Meanwhile, the chemicals cluster contracted 10.6 per cent, the steepest decline among all clusters.

Lower production in the petrochemicals (minus 48.7 per cent) and petroleum (minus 7 per cent) segments – due to plant maintenance, softer demand and feedstock supply disruptions – offset growth in others (8 per cent) and specialties (5.5 per cent) segments.

Chua expects the petrochemicals segment to remain weak, with any rebound likely to be modest given feedstock constraints arising from disruptions in the Strait of Hormuz. 

Biomedical manufacturing declined 5.3 per cent due to contractions in both pharmaceuticals (minus 14.3 per cent) and medical technology (minus 2.2 per cent).