Singapore’s factory output reversed into the red with a 0.9% year-on-year in October, following broad based contractions in sectors such as general manufacturing and transport engineering.
This is poorer than the 7.3% growth expected by economists.
A further decline was mitigated by stronger demand for the biomedical manufacturing. Excluding the cluster, the drop in output widened to 2.7%, according to data released by the Singapore Economic Development Board (EDB), a government agency under the Ministry of Trade and Industry (MTI).
October’s showing is a significant deviation from the 24.2% year-on-year growth registered in September.
This “blip [is] more likely a pause rather than shift in trend,” notes JPMorgan analyst Ong Sin Beng. This is as October’s Purchasing Manager’s Index (PMI) – which came in at 50.5 points – continued to signal expansion, he explains.
See also: Singapore's factory output grows for fourth consecutive month in October
On a seasonally adjusted month-on-month basis, manufacturing activity plunged by 19.0% - reversing from the 10.1% growth seen in September. Excluding biomedical manufacturing, output was down by 2.9%.
The biomedical cluster – a key driver of Singapore’s factory output this year, despite the volatility it has been facing – expanded by 10.2% year-on-year in October. This follows a 14.6% surge in the performance of the pharmaceuticals segment, which is thanks to an increase in the output of biological products.
A 2.9% increase in output from its medical technology segment provided a further lift to the cluster’s performance.
Precision engineering followed suit, with a 10.6% growth in output. This comes from a 16.8% expansion from its machinery & systems segment which benefitted from higher output of industrial process and semiconductor equipment.
A stronger growth for the cluster was mitigated by a 3.5% decline in its precision modules & components segment which saw lower production in its dies, moulds, tools, jigs and fixtures.
Meanwhile, all other sectors contributing to Singapore’s overall factory output were in the red. At 31.8%, the transport engineering cluster registered the highest year-on-year decline.
This was led by declines to the marine and offshore engineering (38.7%) and aerospace (37.1%) segments which saw order intake taking a hit from the weak global oil and gas market as well as travel restrictions imposed to curb the spread of coronavirus infections.
EDB notes that a further contraction to the cluster was mitigated by a 13.9% growth to its land segment.
Output for general manufacturing similarly contracted by 12.8% due to broad based declines across its segments. The strongest decline of 18.3% was seen in its printing segment which has been facing lower demand since the Covid-19 pandemic broke out.
The cluster was further burdened by an 11.5% dip in the food, beverage and tobacco segment, as well as a 13% slip in the output of its miscellaneous segment which was hit by weak demand for construction-related products.
Similarly, the chemicals segment saw output inch down by 0.8%, mainly due to lower output from its chemicals and petroleum segments that were hit by plant maintenance shutdowns and lower export orders.
Still, the cluster benefitted from a boost in demand for specialities (+11.8%) and petrochemicals (+3.3%).
The electronics cluster meanwhile registered a 0.6% drop, a sharp swing from September’s 33.1% growth. This comes as expansions to its computer peripherals and data storage segment (+20.2%) and other electronic modules and components (+16%) was not enough to make up for falls in semiconductors (-2%) and infocomms and consumer electronics (-2.5%).
Looking ahead, Maybank Kim Eng economists Chua Hak Bin and Lee Ju Ye say the sector may face temporary disruptions from the sanctions on Huawei.
Meanwhile, they expect momentum in the manufacturing sector and the strong growth in pharmaceuticals seen in 3Q2020 to subside going forward. This is despite the recent breakthroughs in the Covid-19 vaccine development which may in turn increase the demand for and production of active ingredients in the coming months, say Chua and Lee.
To this end, they are maintaining their 2020 full year GDP growth forecast at -5.7% and expect a modest 4.5% recovery next year.
“Next year’s outlook has been brightened by positive developments on the vaccine front, which will help ease lockdowns and travel restrictions across the world, and revive Singapore’s aviation and tourism sectors. Construction activities will likely normalize [while] manufacturing will continue expanding at a healthy clip,” they note.
