Singapore Q1 manufacturing outlook gloomy; electronics rebound likely temporary, say analysts

SINGAPORE’S manufacturing outlook in the first quarter is likely to remain gloomy, after factory output in December shrank for the third straight month, economists said.

“Expect industrial production to stay in the doldrums in Q1 2023, notwithstanding China’s earlier-than-expected reopening, especially with the ongoing post-exit Covid-19 surge, which cannot offset the global demand slowdown in major markets like the US, EU and UK in the short term,” OCBC chief economist Selena Ling said. But she added that manufacturing activity should gradually stabilise in subsequent quarters to bring 2023 full-year growth to 1.6 per cent year on year.

UOB senior economist Alvin Liew is less bullish, expecting 2023 full-year manufacturing to contract by 5.4 per cent due to the “faltering outlook for electronics and weaker external demand”. “Our 2023 outlook is largely premised on broad moderation in external economies this year, and we project the US and European economies, which are key end markets for Singapore, to enter a recession this year amid aggressive monetary policy tightening stance among these advanced economies,” he said. With the weaker IP outlook, “cracks” in the export outlook have also become more visible now with the consecutive and deeper year-on-year contractions, Liew added. Maybank economists Chua Hak Bin and Lee Ju Ye posted a more optimistic view; they are expecting manufacturing to continue declining in H1 but believe the downturn may be shallow, as China’s reopening could help cushion the downturn from the US and Europe and reduce the odds of a recession. “We think Singapore will likely decouple from the risk of a US recession in 2023, in part because of the reopening tailwinds and China’s reopening,” they said.

Industrial production (IP) fell 3.1 per cent year on year in December, easing slightly from the previous month’s worse-than-expected 3.8 per cent contraction, data from the Singapore Economic Development Board (EDB) showed on Thursday (Jan 26).

Still, it was a better performance than the 6.9 per cent contraction that private-sector economists polled by Bloomberg were expecting.

Excluding the typically volatile biomedical manufacturing cluster, factory output expanded 0.3 per cent year on year, reversing November’s 5.8 per cent contraction.

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December’s showing brings 2022 full-year industrial output growth to 2.5 per cent, moderating from the previous year’s 13.2 per cent expansion.

Barclays regional economist Brian Tan said this may result in a slight upgrade for fourth-quarter gross domestic product to 2.3 per cent, from 2.2 per cent, but is unlikely to lead to an upward revision to full-year growth.

The electronics sector is one of two clusters that saw growth in output in December, after five straight months of decline. Production rose 4.6 per cent year on year, compared to a 12.4 per cent contraction in November.

This was largely due to an expansion in the infocomms and consumer electronics segment, which helped to offset the lower output of semiconductors and other modules and components.

Transport engineering output expanded 9.3 per cent in December, easing from the previous month’s 18.6 per cent growth. The aerospace segment grew 27.2 per cent thanks to more maintenance, repair and overhaul (MRO) jobs from commercial airlines on the back of increased global air traffic.

“While we expect that highly anticipated return of Chinese tourists with the re-opening should bode well for the aerospace industry, and in turn accelerate the demand for MRO activities, the near-term outlook for the electronics industry remains mixed,” said Ling.

“Notably, the semiconductor industry saw output contract for the second straight month, albeit the infocomms and consumer electronics segment did see a strong rebound in December 2022,” she said.

Most economists believe the electronics rebound is likely to be temporary.

“We think the positive print is encouraging but may not last, as semiconductors will likely fall at a steeper pace in the first half of 2023 on the back of weaker global demand and also relative to last year’s high base,” Maybank’s Chua and Lee said.

Biomedical manufacturing was the worst performing cluster, swinging back to a 20.3 per cent year-on-year contraction in December after a 9 per cent expansion in the previous month.

The medical technology segment shrank 14.7 per cent due to lower export demand, while pharmaceutical output slumped 24.3 per cent due to a different mix of active pharmaceutical ingredients being produced compared to a year ago.

Other clusters that saw year-on-year decline include:

• General manufacturing (-2.8 per cent)
• Precision engineering (-4.1 per cent)
• Chemicals (-9.5 per cent)

On a seasonally adjusted month-on-month basis, however, factory output increased 3.2 per cent. Excluding biomedical manufacturing, production would have increased 6.8 per cent.