Singapore’s industrial production fell by 3.1% on a y-o-y basis in December 2022, making this the third consecutive month of decline.
The decline, which was less than the 6.9% y-o-y drop estimated by the Bloomberg consensus, was due to the drag by the biomedical cluster.
The cluster declined by 20.3% y-o-y due to the lower output from the pharmaceuticals segment and the medical technology segment at 24.3% and 14.7% respectively. The pharmaceuticals segment fell due to a different mix of active pharmaceutical ingredients being produced from the year before while the medical technology segment fell on the back of lower export demand for medical devices.
Excluding biomedical manufacturing, Singapore’s output increased by 0.3% y-o-y.
Output for the chemicals, precision engineering and general manufacturing clusters also declined on a y-o-y basis at 9.5%, 4.1% and 2.8% respectively.
The chemicals cluster recorded a decline in the output of the specialties and the petrochemicals segments and offset by increases seen in the petroleum segment on the back of higher demand for jet fuel.
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The precision engineering cluster saw outputs for the machinery & systems and precision modules & components segments falling by 0.7% and 11.2% y-o-y respectively.
In general manufacturing, the printing segment grew 1.3% while the food, beverage & tobacco and miscellaneous segments declined 0.6% and 5.3% respectively.
Meanwhile, output for the transport engineering and electronics clusters increased by 9.3% and 4.6% y-o-y respectively
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Transport engineering saw the expansion of output for the aerospace segment, offset by the marine & offshore engineering and land segments.
Output for the electronics cluster saw output for the infocomms & consumer electronics and computer peripherals & data storage segments grow by 16.9% and 0.9% respectively. At the same time, the semiconductors and other electronic modules & components segments declined 0.3% and 13.5% respectively on the back of softening demand.
On a seasonally adjusted m-o-m basis, the country’s manufacturing output grew by 3.2%, which was also a positive surprise to analysts. Excluding biomedical manufacturing, output grew by 6.8% m-o-m.
Analysts say…
OCBC Bank’s chief economist & head of treasury research & strategy, Selena Ling, warns that Singapore’s industrial production may “stay in the doldrums” in the 1Q2023. This is in spite of China’s earlier-than-expected re-opening, which cannot offset the global demand slowdown in major markets like the US, European Union (EU) and the UK in the short-term.
“However, S’pore’s manufacturing activity should gradually stabilise in subsequent quarters to bring full-year 2023 growth to 1.6% y-o-y,” she says. “Nevertheless, this is still a moderation from the 2.5% growth momentum recorded last year, and is a reflection of the growing global recession risks.”
Like OCBC’s Ling, RHB Group Research’s senior economist Barnabas Gan is expecting the industrial production momentum to stay soft in the 1Q2023. This is “given the lacklustre external-facing prognosis in the near term,” he says.
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“At this juncture, we remain cautious about Singapore’s economy in the next three to six months, considering the ongoing trade headwinds across Asia,” he adds. “With Singapore being an export-oriented economy, domestic manufacturers are likely to adjust production activity in view of the export outlook, and the latter isn’t looking great either. Singapore’s non-oil domestic exports (NODX) declined 20.6% y-o-y in December 2022, the deepest contraction in almost ten years.”
“Across Asean, we also observe that real trade has declined in 4Q2022, thus suggesting that the trade headwinds have negatively impacted the region,” he continues.
In his report, Gan has kept his industrial production forecast at 0% to 2% for 2023, on the back of a weak external outlook.
“We view China’s economic downturn as one of the most significant risk factors for Singapore’s economic prognosis, coupled with the adverse spillover effects it may have on global external demand,” says Gan.
“We remain pessimistic on Singapore’s outward-oriented sectors into the next six to eight months, including the electronic and chemicals clusters, given that China is the world’s largest importer of semiconductor chips and petrochemicals,” he adds.
That said, Gan sees a “silver lining” towards the 2H2023. To him, China’s gradual reopening stance may persuade trade demand and manufacturing activity in the region in the latter half of this year.
The senior economist adds that there are “bright spots” in Singapore’s manufacturing arena with the gradual reopening of borders and the pickup in travel demand supporting the country’s aerospace segment.
Singapore’s GDP for the 4Q2022 may also be upgraded to 2.3% y-o-y, slightly higher than the advance estimates of 2.2% y-o-y.
“The likelihood for an upward revision is due to the slightly better manufacturing performance of -2.6% y-o-y in 4Q2022, against the advance estimates of -3.0% y-o-y,” says Gan. “As discussed above, the return of tourism-related demand to Singapore’s shores should also benefit the services sector, which may add more upside risks to 4Q2022’s numbers should it surprise higher.”
UOB’s senior economist Alvin Liew is also estimating a “small upward revision” to Singapore’s GDP for the 4Q2022 with the country’s manufacturing sector declining by a smaller-than-expected -2.6% y-o-y in the quarter.
“[Singapore’s] industrial production actually expanded by a slower pace of 2.5% in 2022, (versus the official estimate of 2.6% made based on advance estimates released on Jan 3),” he notes, adding that despite the expectation of a small increase to Singapore’s 4Q2022 GDP to 2.3% y-o-y from 2.2%, Liew expects that Singapore’s GDP for the full year could be lowered to 3.7%, down from 3.8% previously.
“We maintain our forecast for Singapore 2023 manufacturing to contract by 5.4% due to the faltering outlook for electronics and weaker external demand, a view that is supported by the declining trend in purchasing managers’ index (PMI) and the increasing visible cracks in exports’ outlook,” says Liew.
“With the weaker 2023 manufacturing outlook and barring external events (such as escalating war in Europe and a deadlier variant of Covid-19), we keep our modest 2023 GDP growth forecast of 0.7% unchanged (versus the official forecast range of 0.5%-2.5%),” he adds.
