Singapore’s February factory output down a sharp 8.9%, far lower than analysts’ expectations

SINGAPORE’S manufacturing performance in February turned out to be far weaker than analysts had predicted, with output contracting sharply on the back of a steeper decline in pharmaceutical production, data from the Singapore Economic Development Board (EDB) showed on Friday (Mar 24).

Industrial production fell 8.9 per cent year on year in February, down from a downward-revised 3.1 per cent in the previous month.

This is the fifth straight month of contraction – and is far worse than the 1.8 per cent contraction that private sector economists polled by Bloomberg were expecting.

“The result is all the worse considering there are more working days in February this year compared to last year,” said ANZ head of Asia research Khoon Goh. This year’s Chinese New Year break was in late January, whereas last year’s was in early February.

Excluding biomedical manufacturing, which is typically volatile, output fell 4.9 per cent year on year.

On a seasonally adjusted month-on-month basis, output shrank 11.7 per cent in February, compared with the previous month’s 0.4 per cent contraction. Excluding biomedical manufacturing, the decrease was 8.1 per cent.

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February’s manufacturing performance mirrors the weak showing of non-oil domestic exports (NODX), which also contracted for five straight months in the same month.

This highlights the challenges to the growth outlook in 2023, said Nicholas Mapa, ING senior economist.

ANZ’s Goh added that the weakness in NODX suggests further downside in industrial production over the coming months.

China’s reopening has also not had a “meaningful” impact on manufacturing and exports so far, said Maybank economists Chua Hak Bin and Lee Ju Ye. “We expect China’s reopening to have a more pronounced and visible impact on growth from the second quarter onwards.”

However, they added that the US banking turmoil has increased the probability of a recession in the United States, and could weaken consumer demand there.

“Singapore will depend on the boost from China’s reopening to decouple from a US recession,” the Maybank team said.

Cluster performance

Biomedical manufacturing was the worst performing cluster in February, clocking an overall contraction of 33.6 per cent year on year.

The pharmaceuticals segment was the main drag as production tumbled 59 per cent year on year, due to a different mix of active pharmaceutical ingredients being produced compared to a year ago, EDB said. The decline could not offset the 13.7 per cent year-on-year expansion in the medical technology segment, which saw higher export demand for medical devices.

Electronics output fell 10 per cent year on year in February, with most segments declining other than the computer peripherals and data storage segments, which had paltry growth.

But Barclays regional economist Brian Tan noted that the 25.1 per cent sequential surge in semiconductor output, which helped seasonally adjusted production return to trend level, could be a sign that the segment may be bottoming out.

However, UOB senior economist Alvin Liew disagreed, saying: “The worsening downward trend of Asia-Pacific semiconductor sales, which turned more negative in January at -19.4 per cent year on year from -17.1 per cent year on year in December, bodes further ill for semiconductor demand, while affirming we remain in the midst of an electronics downcycle.”

Chemicals production contracted 14.9 per cent year on year, led mostly by the poor-performing petrochemicals segment.

Meanwhile, transport engineering was February’s brightest spot, hitting year-on-year growth of 22.9 per cent in February.

This was supported by a 41 per cent jump in the marine and offshore engineering segment, due to higher level of activities in the shipyard as well as increased production of oil and gas field equipment.

Other clusters with year-on-year growth in output were:

• Precision engineering (4.9 per cent)
• General manufacturing (0.5 per cent)

UOB’s Liew noted that these three clusters helped to partly offset an otherwise much deeper manufacturing contraction.