Singapore factory output growth slows to 0.6% in July as electronics output falls

SINGAPORE’S factory production saw surprisingly low growth of 0.6 per cent in July, vastly undershooting economists’ expectations of 5.3 per cent – the median forecast in a Bloomberg poll of private analysts – owing to contraction in the key electronics cluster and further declines in biomedical manufacturing.

But all other clusters saw firm growth. Excluding the volatile biomedical manufacturing cluster, industrial production rose 2.9 per cent year on year in July. (see Amendment note)*

The linchpin electronics cluster fell 6.3 per cent year on year, reversing its growth of 2.3 per cent in June, according to preliminary data from the Singapore Economic Development Board (EDB) on Friday (Aug 26).

Output in the key semiconductors segment shrank 4.1 per cent, extending a decline of 2.6 per cent the previous month. Other electronic modules and components segment contracted by 19.7 per cent, which the EDB attributed to “lower export orders from China and Korea”.

Noting that electronics output fell 10.7 per cent on a seasonally adjusted month-on-month basis, extending June’s 15.9 per cent contraction, Barclays economist Brian Tan said: “While production has been relatively choppy this year, our estimates suggest the latest contraction has dragged seasonally adjusted levels of electronics output well below trend.”

Biomedical manufacturing output fell 10.8 per cent in July, deepening from June’s decline of 9.5 per cent.

The medical technology segment rose 11.5 per cent in July due to higher demand for medical devices from the US and China. But in contrast, the pharmaceuticals segment declined 25.7 per cent “due to a different mix of active pharmaceutical ingredients being produced”, said the EDB.

For the first 7 months of this year, biomedical manufacturing output was down 5.2 per cent compared to the same period in 2021.

Besides those two major clusters, however, firm growth was registered by the others:

• Transport engineering (18.6 per cent)
• General manufacturing (14.6 per cent)
• Precision engineering (13.9 per cent)
• Chemicals (5.7 per cent)

On a seasonally adjusted, monthly basis, manufacturing output fell 2.3 per cent in July, or 1.1 per cent excluding biomedical manufacturing.

For the year to date, overall manufacturing grew by 4.9 per cent year on year, or 6.9 per cent excluding biomedical manufacturing.

The global environment remains challenging, with a major factor being the tepid performance of the Chinese economy, driven in part by its zero-Covid policy and a slump in the property sector, said Cheryl Chan, senior vice-president for capital markets at digital securities exchange ADDX.

Global semiconductor demand has pulled back sharply and big tech companies have provided less upbeat forward earnings guidance as consumer demand moderates, pointed out OCBC chief economist Selena Ling.

She expects that full-year manufacturing growth may be as low as 3 to 4 per cent if momentum in the second half remains tepid at around 2 per cent year on year.

“Since manufacturing accounts for around a quarter of Singapore’s gross domestic product (GDP), the sharper than expected easing in July’s growth momentum suggests there is some downside risk ahead for the remainder of the year,” she added.

Maybank economists Chua Hak Bin and Lee Ju Ye similarly attributed Singapore’s slower manufacturing growth to the decline in semiconductor production resulting from softening global chip sales.

However, transport engineering and general manufacturing clusters previously hit by Covid are rebounding from last year’s low base, they added.

They maintained their 2022 GDP growth forecast at 2.8 per cent, below the official 3 to 4 per cent forecast range, adding: “The manufacturing downturn (which accounts for around 22 per cent of GDP) and slowdown in trade-related services such as wholesale trade and transportation and storage will weigh on GDP growth in the second half”.

*Amendment note: An earlier version of the story stated that in July, industrial production rose 4.3 per cent excluding biomedical manufacturing. The correct figure is 2.9 per cent.