Singapore manufacturing, services business outlook more upbeat for next 6 months
SINGAPORE’S manufacturers and services firms have become more positive about business conditions in the next six months, based on separate quarterly surveys on Monday (Jul 31).
A net weighted balance of 6 per cent of manufacturers are optimistic about prospects from July to December, improving from 2 per cent in the previous quarterly survey, going by the latest release from the Economic Development Board (EDB). This marks the second straight quarter for which manufacturing sentiment for the next six months is positive.
For services firms, a net weighted balance of 8 per cent are optimistic, up from 4 per cent previously, in a similar survey by the Department of Statistics (SingStat).
The net weighted balance is the difference between the weighted shares of positive and negative responses, with a positive figure indicating more optimism than pessimism.
The surveys suggest that “the worst may be over and there potentially should be a modest uptick for the H2 2023 outlook,” said OCBC chief economist Selena Ling.
In manufacturing, a weighted 13 per cent expected improved conditions ahead, up from 12 per cent in the previous survey. This compares to 7 per cent bracing for circumstances to worsen, down from 10 per cent before.
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“The modest improvement... signals a possible recovery in factory activity over the coming months, albeit a fragile one, given a still challenging global economic climate,” said DBS economist Chua Han Teng.
Ling added: “Chinese policymakers are under pressure to deliver more aggressive and urgent policy stimulus, which could boost market sentiments and aid their domestic consumption, and in turn, demand for regional imports.”
Sentiments were mixed among clusters. Transport engineering remained the most optimistic, led by the aerospace segment, which expects sustained demand for aircraft maintenance, repair and overhaul jobs amid continued strong air travel demand. This demand is partly due to the return of Chinese visitors, noted Maybank economist Brian Lee.
In transport engineering’s marine and offshore engineering segment, companies also continue to anticipate more orders from the oil and gas and renewable energy industries.
Businesses in electronics also expect an improved operating environment in the second half of the year, led by the semiconductors segment.
Industrial production data for June showed that the electronics cluster could be nearing a bottom, said Ling, with electronics output posting the smallest decline since December 2022. Semiconductor output rebounded to post 3.1 per cent year-on-year growth in June, up for the first time since October 2022, she added.
Chua agreed: “The decline in global semiconductor sales appears to be bottoming and there is medium-term optimism on artificial intelligence-related chips, even though the destocking of inventories still has some room to run, and geopolitical tensions continue to linger.”
Lee added that exports to China and Hong Kong are recovering.
But Ling added that “it may not be smooth sailing for all manufacturing industries across the board”, with sentiments souring in some clusters.
Least upbeat was the biomedical manufacturing cluster, mainly driven by the medical technology segment, where the uncertain macroeconomic situation is expected to cause softer orders for life science instruments and consumables.
Overall, a net weighted balance of 6 per cent of manufacturers expect higher output in Q3, compared to the previous quarter.
For the three months from July to September, a majority of clusters expect output to rise, led by transport engineering. The biomedical manufacturing and chemicals clusters expect declines in output.
Hiring expectations were slightly higher for the third quarter of 2023, with a net weighted balance of 4 per cent of manufacturers expecting an increase in hiring activities.
“A majority of firms (a weighted 84 per cent) in the manufacturing sector expect employment level in the third quarter of 2023 to remain similar to the second quarter of 2023,” EDB said.
Transport engineering was the most optimistic in its employment outlook; electronics and precision engineering were the least optimistic.
In the services industry, 19 per cent of firms are upbeat about business conditions while 11 per cent are bracing for a less favourable environment from July to December.
Almost all industries expressed positive sentiments on conditions for the half-year, excepting wholesale trade as well as administrative and support services.
In the accommodation industry, hoteliers are optimistic due to expected growth in tourist arrivals and hotel occupancy rates with the upcoming year-end festive season as well as major events such as the Singapore Grand Prix in September, said EDB.
Ling and Chua also noted the return of Chinese tourists, which should support travel and hospitality-related services.
Wholesalers, on the other hand, expect dampened demand on account of the weak macroeconomic environment. Those in the computers, computer peripheral equipment and software segment attribute their negative sentiments to weak demand for computers.
A net weighted balance of 10 per cent of firms in the services sector foresee higher revenue in Q3, up from 5 per cent in Q2. Businesses in the accommodation industry were the most optimistic about higher revenues, while wholesale trade was the only services industry where businesses foresee lower revenue.
In terms of employment, most industries expect to increase hiring activities in Q3, with a net weighted balance of 9 per cent for the services sector. Positivity was recorded across industries, with wholesale trade being the sole exception.
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