SINGAPORE’S factory output grew 0.9 per cent year on year in September, accelerating from the previous month’s revised 0.4 per cent rate, according to data from Singapore Economic Development Board (EDB) on Wednesday (Oct 26).

The month’s figures, though a reversal from the slowing growth since May, were below a Bloomberg poll of private-sector economists’ median estimates of 1.2 per cent growth. Analysts agreed that manufacturing growth remains weak.

Excluding the volatile biomedical cluster, factory output grew by 2 per cent, compared to a 1.2 per cent fall in the preceding month.

These figures came as declines were recorded in the electronics, chemicals and biomedical manufacturing clusters, and Singapore’s purchasing managers’ index fell in September to below the 50.0 border to contract for the first time in two years.

In its third consecutive month of decline, the key electronics sector recorded a 7 per cent contraction year on year, against a 7.8 per cent contraction in August. The cluster was dragged down by declines in most segments, excluding the infocomms and consumer electronics segment, which grew by 21.8 per cent on the year, a three-month high.

Other electronic modules and components declined most significantly (-29.1 per cent), followed by computer peripherals and data storage (-15.2 per cent) and semiconductors (-8.4 per cent).

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Biomedical manufacturing output also declined by 3.5 per cent in September from the year-ago period. While the medical technology segment expanded 6.3 per cent with higher demand for medical devices from the United States, Europe and China, pharmaceuticals contracted 8.5 per cent after rebounding in August, due to a different mix of active pharmaceutical ingredients being produced compared to a year ago.

Also seeing a contraction was the chemicals cluster (-7.1 per cent), extending the 11.6 per cent fall in August. 

The petroleum segment grew 12.1 per cent on account of higher demand for jet fuel driven by the relaxation of global air travel restrictions. However, the petrochemicals segment saw output fall 14.7 per cent due to plant maintenance shutdowns.

Output also fell for other chemicals (-12.7 per cent) and specialties (-2.3 per cent), as the former reported lower output of fragrances while the latter saw lower production of mineral oil additives and industrial gases.

The remaining clusters saw growth:

• Precision engineering (7.7 per cent)

• Transport engineering (38 per cent)

• General manufacturing (23.3 per cent)

Maybank analysts Chua Hak Bin and Lee Ju Ye noted that transport engineering growth was its highest since Dec 2018, while general manufacturing recovered to above pre-Covid levels.

On a seasonally adjusted, monthly basis, manufacturing output remained unchanged in September. Excluding biomedical manufacturing, factory output grew 2.8 per cent.

Barclays analyst Brian Tan pointed out that electronics output fell by 6.7 per cent on the month, “essentially reversing” August’s 6.9 per cent expansion. “Our estimates suggest seasonally adjusted levels of electronics output remain well below trend,” he said.

RHB senior economist Barnabas Gan and UOB senior economist Alvin Liew also noted a contraction in electronics non-oil domestic exports in September.

Analysts said that the September industrial production print brings manufacturing growth for Q3 (0.8 per cent) below flash estimates (1.5 per cent). Assuming other sectors are unchanged from flash estimates, Maybank and UOB predict that final GDP growth for the quarter may be downgraded to about 4.2 per cent, from 4.4 per cent.

RHB, however, said that the shortfall is “negligible”. “A downgrade (if any) should translate to a marginal adjustment to 4.3 per cent year on year,” Gan said.

For the year to date, overall manufacturing grew by 3.9 per cent year on year, or 5.4 per cent excluding biomedical manufacturing. 

Analysts expect the manufacturing slump to continue into the fourth quarter and 2023, as high inflation persists and demand dampens.

“Anecdotally, the big chipmakers like Texas Instruments and SK Hynix have provided a bearish outlook ahead,” said OCBC chief economist Selena Ling. Other chipmakers, she added, have also sounded the alarm about a demand slump, with memory chip prices down by 20 per cent last quarter, according to Bloomberg. 

“Recent moves by the US administration to rein in chip exports to China are also weighing on the global chip industry’s outlook. This is despite the approaching year-end where peak Christmas orders should be beneficial for the order pipeline.”

But Maybank, Barclays and UOB agreed that a buoyant services sector, driven by international travel recovery, will offset manufacturing weakness and boost gross domestic product (GDP) growth.

For 2022’s full-year GDP growth, Maybank raised its forecast to 3.5 per cent (from 2.8 per cent); Barclays raised its forecast to the top end of the official forecast range at 4 per cent (from 3.7 per cent); while UOB retained its 3.5 per cent forecast.

Maybank maintained its 2023 forecast at 1.5 per cent on tightening monetary conditions, slowing global growth and dissipating reopening tailwinds. Barclays reduced its forecast to 2.6 per cent from 2.8 per cent. UOB expects GDP growth to ease to 0.7 per cent next year.

Barclays does not expect further monetary policy tightening in 2023, as “MAS (the Monetary Authority of Singapore) appears to be comfortable with its current settings despite officials emphasising repeatedly that inflation is set to remain high over the medium term”.

However, Tan acknowledged the risk of a further 50 basis point slope increase in the Singapore dollar nominal effective exchange rate to an estimated 3 per cent, as well as another upward re-centring.

Maybank, in contrast, expects further tightening via re-centring in April 2023, to combat inflation, even despite rising recession risks.

Chua and Lee added: “MAS is forecasting core inflation to remain elevated at 3.5 to 4.5 per cent in 2023 (versus around 4 per cent in 2022), and expects inflation to moderate only in the second half of next year.”