RHB senior economist Barnabas Gan is expecting industrial production momentum to stay soft in 4Q2022, and has downgraded his manufacturing outlook to 3.0% in 2022 from 4.0% previously.
Singapore’s industrial production expanded 0.9% y-o-y in September, “disappointing” Bloomberg’s growth estimate of 1.2%, says Gan.
The way he sees it, “the writing is on the wall” for a softer manufacturing prognosis given the current headwinds against trade demand. “As seen in September’s non-oil domestic export (NODX) numbers, NODX in real terms, stripping out price effects, contracted 3.5% y-o-y, posting its seventh decline in the past eight months,” says the economist.
“We think the weakness in September’s electronic outbound shipments will likely persist into the end-year and possibly into early 2023 amid the lacklustre global economic environment,” Gan adds, explaining his reasons for downgrading Singapore’s manufacturing outlook.
Meanwhile, chief economist Selena Ling of OCBC says: “Industrial production may continue to eke out a tepid performance in the remaining months ahead given that global growth and demand prospects have softened significantly amid the tightening financial conditions with aggressive monetary policy tightening by global central banks and elevated inflationary pressures eating into consumers’ pockets.”
“The manufacturing output expanded 3.9% for the first nine months of this year, but is likely to come in below the 3% handle for the full year amid the growing economic headwinds,” she adds.
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Ling notes that excluding biomedical manufacturing, industrial output rose 2.0% y-o-y in September, below Bloomberg consensus forecast of 1.2% yoy, but better than her expectations for a decrease of 1.8% y-o-y.
This was an improvement from August’s downwardly revised reading of 0.4% y-o-y, says Ling. Key drivers came from transport engineering, which grew 38.0% y-o-y due to improved activities in both the marine and offshore engineering segment as well as the aerospace segment; general manufacturing, which grew 23.3% y-o-y amid higher output of food, beverage & tobacco, structural metal products and clothing; and precision engineering, which increased by 7.7% y-o-y due to higher production of semiconductor foundry equipment and process control equipment.
Gan notes that although industrial production in September was flat compared to August with no m-o-m changes, compared to the decline of 0.1% and 2.7% in July and August, there are “cracks” when inspected further.
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He points out that output momentum for electronic manufacturing, which declined a further 3.0% in September, after falling by 6.2% in August, while chemicals slipped by 0.8% in September after its 5.0% decrease in August and biomedical manufacturing decreased by 2.4% and 4.1% in September and August respectively. Elsewhere, the momentum in transport engineering, which posted growth of 0.1% in September is at its slowest pace in seven months, says Gan.
Ling says that y-o-y, the two heavyweights — electronics and biomedical manufacturing — continued to underperform in September. Biomedical manufacturing was the main drag at a negative rate of 3.5% y-o-y, mainly weighed down by the pharmaceuticals segment which decreased 8.5% y-o-y despite medical technology demand for medical devices.
“In particular, electronics output also fell again for the third straight month by 7.0% y-o-y, as semiconductors, computer peripherals and data storage and other electronics modules and components contracted amid the demand slowdown,” says the OCBC economist.
“Semiconductors output fell for the fourth consecutive month by 8.4% y-o-y, marking the sharpest declines since the start of the pandemic. In addition, the chemicals output also fell 7.1% y-o-y in September, as specialities and other chemicals saw a lower output of mineral oil additives, industrial gases and fragrances while petrochemicals also had plant maintenance shutdowns,” she adds.
Anecdotally, Ling points out that big chipmakers like Texas Instruments Inc and SK Hynix Inc have provided a bearish outlook ahead, with the former guiding for sluggish demand for both personal devices and also industrial-equipment and the latter warning of an unprecedented deterioration in market conditions and slashing its capital sending by at least half for next year.
Meanwhile, other chipmakers like Samsung Electronics, TSMC, Intel Corp and Nvidia have also sounded the alarm about a demand slump, with memory prices down by 20% last quarter, according to Bloomberg.
“Recent moves by the US administration to rein in chip exports to China is 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,” adds Ling.
Overall, RHB’s Gan says: “For the rest of 2022 and early 2023, perhaps, we expect further weakness in Singapore’s manufacturing environment, dragged by the persistently high inflation and softer trade dynamics across both developed and developing economies.”
“The slowdown in both US and China economies is likely to dampen trade demand and negatively impact Singapore’s manufacturing activity in the months ahead. Moreover, the stronger nominal effective exchange rate to date injects a higher nominal price for Singapore’s exports and could further cap Singapore’s overall growth prognosis,” he adds.
With manufacturing output still soft, Ling believes the Singapore economy will need the services sector to do the “heavy lifting” from here.
