Singapore’s factory output shrinks by worse-than-expected 3.2% in November

SINGAPORE’S factory output contracted 3.2 per cent year on year in November, deepening from October’s revised 0.9 per cent decrease, according to Economic Development Board data on Friday (Dec 23).

This was worse than the 1.2 per cent contraction estimated by private-sector economists in a Bloomberg poll. October’s performance was the first year-on-year decline in 13 months, but still better than economists expected.

Still, analysts said that November’s steeper fall was unsurprising. November export data earlier this month showed a slump, and industrial production figures tend to follow this, given Singapore’s export-oriented economy, said Oxford Economics senior Asia economist Alex Holmes.

Excluding the typically volatile biomedical cluster, factory output shrank 4.8 per cent in November, falling into contraction after October’s 2.2 per cent growth.

This is the latest in a weakening manufacturing outlook, with Singapore’s purchasing managers’ index in contraction for the third straight month in November.

Output declined in the key electronics cluster, as well as for chemicals. Electronics contracted for the fifth straight month, down 12.4 per cent year on year – a sharp worsening from October’s 0.7 per cent contraction. It was dragged down by declines in most segments on the back of softening demand.

The other electronic modules and components segment shrank most (-21.6 per cent), followed by semiconductors (-14 per cent) and infocomms and computer electronics (-12.1 per cent). The only segment that grew was computer peripherals and data storage, up 9.3 per cent.

ANZ chief economist for South-east Asia and India Sanjay Mathur said that the fall in semiconductors was the main force weighing down on industrial output.

Besides the global semiconductor downcycle, Holmes noted another drag on electronics: pandemic-related demand for consumer goods, of which electronics are a big part, is unwinding.

For chemicals, output fell 11.3 per cent. Only the petroleum segment grew (7.8 per cent) on the back of higher demand for jet fuel, as global air travel curbs relaxed.

Petrochemicals fell (-17.5 per cent) on weak market demand and plant maintenance shutdowns; specialities were down (-12.8 per cent) due to lower production of mineral oil additives and industrial gases; and other chemicals fell (-9.5 per cent) with lower output of fragrances.

The remaining clusters saw growth:

• Transport engineering (18.8 per cent)
• General manufacturing (10.3 per cent)
• Biomedical manufacturing (6.9 per cent)
• Precision engineering (4.2 per cent)

Most segments in these clusters grew, with the exceptions of medical technology in biomedical manufacturing, which was flat; precision modules and components (-7.6 per cent) in precision engineering; and printing (-1.7 per cent) and miscellaneous industries (-4.4 per cent) in general manufacturing.

On a seasonally adjusted, monthly basis, manufacturing output fell 1.2 per cent, reversing from October’s 0.6 per cent growth. Excluding biomedical manufacturing, output fell by 6 per cent.

For the year to date, overall manufacturing is still up 3.3 per cent year on year, or 4.5 per cent excluding biomedical manufacturing. But things are expected to worsen.

“The prognosis for December 2022 and Q1 2023 remains weak given that final demand conditions in major economies like EU and UK are already softening and the drag from the global electronics industry is likely to sustain past winter,” said OCBC chief economist Selena Ling.

“As such, the manufacturing sector is likely to underperform in the near term, leaving the heavy lifting for GDP (gross domestic product) growth to the services sector,” she added. She expects manufacturing growth to be about 2.4 per cent in 2022, but then “flatline in 2023 with likely contraction in at least Q1 2023 if not H1 2023, before stabilising in H2 2023”.

Mathur expects this year’s deceleration in industrial activity to continue till Q3 2023, noting that “a typical tech downcycle lasts 13 to 16 months”.

But he noted that Singapore’s GDP composition has been “secularly moving away from manufacturing towards services”, such that industrial output no longer weighs as excessively on overall GDP and employment.

Given the looming “shallow recession” in the US and Europe, Holmes also expects factory production to trend downwards until H1 2023. By then, inflation should have eased and banks will be able to stop tightening monetary policy, hopefully allowing these economies to rebound, he said.

He finds the impact of China’s reopening more uncertain, as consumers still lack confidence. “They’re reopening sooner than most people have expected. But it might be a bit of a disorderly reopening, given that they haven’t got very good vaccine coverage, and it’s turning into a big health crisis.”