Singapore’s factory output remained in the red with a 6.7% year-on-year contraction in June, following volatility in the biomedical cluster. This marks the metric’s second straight month of decline.
Excluding the biomedical cluster, output surged 2.1%, according to data released by the Singapore Economic Development Board (EDB), a government agency under the Ministry of Trade and Industry (MTI).
While the pace of decline eased from the 7.4% registered in May, it falls short of the 2.6% overall contraction forecast by private-sector economists in a Bloomberg poll.
On a seasonally adjusted month-on-month basis, manufacturing output increased a smidgen 0.2% - a significant deviation from the 6.2% dip registered in May. Excluding biomedical manufacturing, June’s output was down 0.8%.
The biomedical sector has been a key driver of Singapore’s factory output this year. However, it bucked the trend with a 30.6% plunge in June, reversing from the 5.9% expansion posted in May. This follows a 37.4% dip in the output of biological products.
The extent of decline was mitigated by a 5.9% increase in the medical technology segment, due to higher export demand for Covid-related medical devices.
Transport engineering similarly, dipped 33.9% in June. This was heralded by a 53.5% shrinkage in its marine and offshore engineering segment, which was hit by the movement restrictions imposed at foreign worker dormitories.
The cluster was furthered weighed by a 23.0% contraction in the aerospace segment which has had lower aircraft repair and maintenance work since the travel restrictions were imposed.
General manufacturing followed suit, narrowing its decline to 13.9% amid softer demand and scaled down production. The dip was led by miscellaneous industries (-26.5%), printing (-24.1%) and food, beverage and tobacco (-2.7%).
With a 12.1% fall, the chemicals cluster was the last to register a contraction in output. This comes from lower production of chemicals (-21.5%), specialities (-27.3%) and petroleum (-34.2%) which took a hit from plant maintenance shutdowns and lower export orders.
Meanwhile, the linchpin electronics cluster reversed out of the red with a 17.3% surge in output. This is attributed to a 26.2% growth in its semiconductors segment that was boosted by demand for cloud services, data centres and 5G wireless markets.
Stronger growth was mitigated by contractions in its electronic modules (-10.2%) and computers and data storage (-35.9%) respectively.
Conversely, output for precision engineering was up 9.1% in June, reversing from its 6.6% contraction the month before. This follows an 11.1% increase in its machinery and systems segment, thanks to higher production of semiconductor equipment.
A 2.9% increase in its precision modules and components segment also pulled up the cluster’s performance.
United Overseas Bank (UOB) economist Barnabas Gan says June’s figures “pales against the advance estimates, which penciled manufacturing growth at 2.5%”.
"Coupled with supply chain disruptions and a poor external environment, it is of no surprise that manufacturing pace saw another month of contraction”.
He also points to restrictions in the number of people who could return to work in June in phase one of Singapore’s re-opening, as an impediment to a growth in factory output.
Other economists feel let down by the performance of the biomedical manufacturing cluster which broke away from a five-month surge.
Albeit a result of the high base from June 2019, OCBC Bank economist Howie Lee says the strength of pharmaceutical manufacturing in April and May “might have been an outlier rather than a new norm”.
"We expect many countries to have achieved reasonable adequacy in necessary biomedical supplies, and that may result in the stabilisation of demand for Singapore's biomedical goods," he adds.
Meanwhile Maybank Kim Eng economists Chua Hak Bin and Lee Ju Ye say June’s showing indicates a possible comeback in the electronics industry. This is as it “surged at the fastest pace in two years”.
"We remain positive on the manufacturing outlook as robust demand for semiconductors and (information technology) equipment will likely support growth for the rest of the year," the duo stress.
Even so June’s figures, along with the downward revision of earlier weakness in May, point to a 0.7% contraction in factory output for 2Q20, says Gan.
Both he and Lee expect this weakness to affect Singapore’s 2Q20 GDP with a 13.2% contraction.
This surpasses the 12.6% plunge released in official advance estimates published in mid-July, based on data from April and May.
