Singapore factory output growth slows sharply to 3.4% in September, missing forecasts

[SINGAPORE] The Republic’s factory output growth slowed sharply to 3.4 per cent year on year in September, from 15.4 per cent in August, as electronics production moderated and biomedical manufacturing contracted.

The reading fell short of the 7.8 per cent expansion forecast by private-sector economists in a Bloomberg poll, based on data released by the Economic Development Board (EDB) on Monday (Oct 26).

Excluding the volatile biomedical manufacturing cluster, output increased 9 per cent year on year, down from August’s revised 16.8 per cent expansion.

On a seasonally adjusted monthly basis, output decreased 3.9 per cent in September, compared with August’s revised figure of 1 per cent contraction.

Excluding biomedical manufacturing, output declined 5.5 per cent, reversing from the revised 5.3 per cent expansion in the previous month.

Despite September’s slowdown, economists from Standard Chartered and OCBC expect Singapore’s third-quarter gross domestic product growth to be revised upwards to 5.6 per cent, from the preliminary 5.4 per cent.

StanChart senior economist Jonathan Koh said the latest manufacturing output figures were stronger than implied by the advance GDP estimates, which were based largely on July and August data.

For the full year, OCBC chief economist Selena Ling maintained her GDP growth forecast of at least 5.5 per cent.

As for RHB group chief economist Barnabas Gan, he raised his full-year growth projection to 5.4 per cent from 5 per cent, citing robust manufacturing growth so far this year and resilient external demand. He also upgraded his manufacturing growth forecast to 9.2 per cent from 9 per cent.

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Within the manufacturing sector, four of the six clusters recorded output growth on a year-on-year basis in September, with the exceptions being chemicals and biomedical manufacturing. 

The linchpin electronics cluster posted the third-highest growth among all manufacturing clusters with output rising 5.7 per cent, easing from August’s 28.3 per cent growth. 

All segments expanded amid robust artificial intelligence-related demand, except other electronic modules and components (-4.2 per cent). 

Growth was led by infocomms and consumer electronics (29 per cent), and computer peripherals and data storage (21.3 per cent), while semiconductors recorded a gain of 1.9 per cent. 

AI demand remains resilient

Despite the moderation in electronics output, economists expect AI-related demand to continue supporting Singapore’s manufacturing sector.

Koh noted that semiconductor output fell 13.1 per cent on a seasonally adjusted monthly basis in September.

“Could this be a nascent sign of a waning AI demand or AI capex cycle? No,” he said, pointing to strong order books and possible capacity constraints.

This echoed the Monetary Authority of Singapore’s assessment in its Oct 14 macroeconomic review that slower electronics output growth likely reflected global supply chain capacity constraints rather than weakening AI-related demand.

Koh added that additional production capacity coming online could support output growth into 2027, although rising financial vulnerabilities among hyperscalers remain a key risk.

UOB associate economist Jester Koh also pointed to strong new export orders and declining stocks of finished goods, which suggested that manufacturers were drawing down inventories to meet robust demand.

He said the eventual replenishment of inventories could support electronics production in the coming months.

DBS senior economist Chua Han Teng said while the “downward volatility warrants monitoring”, he noted that forward-looking indicators – including new export orders and order backlogs – continued to expand, suggesting that semiconductor production will remain supported by AI-related demand.

He expects AI-exposed manufacturing clusters to remain resilient even as higher year-ago comparison bases emerge in Q4.

“However, performance across the manufacturing sector is likely to remain uneven, with risks stemming from rising energy and input costs, as well as supply chain disruptions,” he said.

Chua added that petrochemical firms continued to face feedstock shortages due to the prolonged closure of the Strait of Hormuz amid the unresolved conflict in the Middle East.

Performance by cluster

The precision engineering cluster recorded the strongest year-on-year growth in September at 31 per cent, driven by a 34.8 per cent expansion in machinery and systems amid higher production of semiconductor equipment.

The precision modules and components segment also grew 12.4 per cent.

Transport engineering output rose 10.6 per cent, supported by gains in the land (31.4 per cent) and aerospace (16.3 per cent) segments. However, marine and offshore engineering contracted 6.3 per cent amid lower shipyard activity.

General manufacturing expanded 4 per cent, led by food, beverages and tobacco (11 per cent), and printing (7.6 per cent), although miscellaneous industries declined 8.4 per cent.

Meanwhile, the chemicals cluster contracted 4.6 per cent, weighed down by petrochemicals (-24.3 per cent) and other chemicals (-19.4 per cent), amid softer demand and feedstock supply disruptions.

Biomedical manufacturing fell 32.8 per cent, reversing the previous month’s 2.3 per cent expansion, as pharmaceutical output declined due to a different mix of active pharmaceutical ingredients being produced.