Singapore’s manufacturing output for the month of July increased by 0.6% y-o-y, disappointing Bloomberg’s expectation for a 5.3% print.
The main drags during the month were due to the electronics and biomedical manufacturing clusters, which registered y-o-y declines. These were mitigated by y-o-y growths seen in the rest of the clusters.
Excluding biomedical manufacturing, output grew by 2.9% y-o-y.
On a seasonally adjusted m-o-m basis, manufacturing output in July fell by 2.3%. Excluding biomedical manufacturing, output declined by 1.1%.
RHB lowers IP growth estimate to 5.0% from 5.5%
RHB Group Research’s senior economist Barnabas Gan is retaining his GDP growth estimate for 2022 at 3.2% y-o-y with risks “tilted to the upside”.
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“The upside risk will likely stem from a stronger-than-expected uptick in Singapore’s services growth in 2H2022, primarily led by the ongoing recovery in visitor arrivals and domestic retail sales,” he says in an Aug 26 report. “Note that retail sales continued to grow at a double-digit rate for three straight months into June 2022, while visitor arrivals clocked 726,000 persons in July, or 45.6% of 2019’s monthly average (pre-Covid).”
“Further easing of travel restrictions across Asia should be an essential support for Singapore’s services sector, even as Singapore will allow non-vaccinated travellers to enter without quarantine or post-arrival testing, effective Aug 29,” he adds.
“We also think that some front-loading of retail spending, especially in 4Q2022, could materialise given consumers’ expectations for a higher Goods & Services Tax (GST) tax in the next year,” he continues.
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However, due to the significantly lower-than-expected industrial production (IP) growth in July, Gan now expects manufacturing to expand at a slower pace of 5.0% in 2022 from 5.5% previously.
Furthermore, he expects IP momentum (or three-month moving average) to slow further in 2H2022 on the back of a slowdown in global electronic demand led by China’s economic slowdown amid tighter monetary policy regimes in developed economies.
According to Gan, Singapore is expected to “comfortably avoid” a technical recession in 3Q2022, even if any further deceleration in momentum in 3Q2022 may be enough to tip a sequential growth into the negative zone.
According to the RHB-CLI (SG), the brokerage’s proprietary leading indicator, Singapore’s GDP is expected to moderate in 2H2022 to 3.2% y-o-y, from 1H2022’s 4.1% y-o-y growth. See the rest of the report here.
In the year ahead, Gan is forecasting that the transport engineering and general manufacturing sectors will outshine the rest of the industries.
“The gradual reopening of Asia’s borders (including Singapore’s) should be a vital support for Singapore’s transport-related sectors. These should subsequently underpin the marine & offshore engineering and aerospace segments due to higher demand for such services,” he says. “Meanwhile, low base effects seen in the general manufacturing space, coupled with relatively higher prices for food and beverage (F&B), may persuade a higher production of related products, which lift the general manufacturing segment.”
UOB ‘cautiously positive’ on outlook for transport engineering, general manufacturing and precision engineering
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UOB’s senior economist Alvin Liew is continuing to be “cautiously positive” on the outlook for transport engineering, general manufacturing, and precision engineering, to drive overall IP growth.
However, he also recognises that the country’s electronics performance may potentially be much slower in the remaining months of 2022.
That said, Liew is keeping his IP forecast at 4.5% in 2022, although he notes the increased risk of a weaker IP trajectory due to the faltering outlook for electronics.
“In the same vein, our full year 2022 and 2023 GDP growth forecasts are also unchanged at 3.5% and 2% respectively but the manufacturing outlook indicates the risk to our growth outlook is on the downside, as well,” he writes.
“In addition, another dampener to headline growth is the relatively higher base levels for the rest of 2022, as IP expanded by double digit growth rates between May and December 2021 (except for September 2021),” he adds.
July’s IP suggests downside risk for remainder of 2022: OCBC
The sharper-than-expected easing of July’s IP growth suggests that there is some downside risk for the remainder of 2022, says Selena Ling, chief economist & head of treasury research & strategy at OCBC Bank.
“Full-year manufacturing growth may come in as low as 3%-4% y-o-y if 2H2022 momentum remains tepid around 2% y-o-y,” she says.
Manufacturing sentiments are likely to turn even more cautious, but the earlier 2H2022 business expectations survey had already foreshadowed some of this slowdown, albeit the pace of the slowdown is sharper than initially expected,” she adds.
In her report, Ling is maintaining her GDP growth forecast for 2022 at 3.5%-4.5% y-o-y, which doesn’t factor in a further deterioration in global growth prospects and demand conditions. However, the economist is expecting GDP to come in closer to the lower end of her range.
“The question going forward is whether Singapore’s recent relaxation of Covid restrictions including allowing non-fully vaccinated travellers in could mean a faster pace of recovery in international leisure and business travel and potentially bigger upside for the tourism, hospitality, F&B and retail sector growth momentum in the coming months, especially going into the year-end peak holiday season, to mitigate the sharper manufacturing slowdown,” she says.
Maybank sees manufacturing growth stagnating, to dip below zero ‘for some months’
Maybank Securities economists Chua Hak Bin and Lee Ju Ye are expecting Singapore’s manufacturing growth to stagnate and dip below zero for some months in the 2H2022.
“The electronics (40% weight in total manufacturing) downturn will offset increases in other clusters such as transport engineering (7.2%) and general manufacturing (7.9%),” they write.
The economists’ estimates come after manufacturing growth in July slowed sharply to a 10-month low. This was weighed down by the decline in semiconductor production as global chip sales softened.
“Major chip companies (e.g. Micron, Intel, Nvidia) are predicting a weaker demand outlook and raising concerns of a sharp semiconductor down cycle,” they write.
In the same report, Chua and Lee are keeping their 2022 GDP growth forecast at 2.8%, below the Monetary Authority of Singapore (MAS) and Ministry of Trade and Industry’s (MTI) 3%-4% forecast range.
“The manufacturing downturn (which accounts for around 22% of GDP) and slowdown in trade-related services such as wholesale trade and transportation & storage will weigh on GDP growth in the second half,” they write.
“Risks of a technical recession - defined as two consecutive quarters of q-o-q contraction - has risen with the sudden and sharp downturn in electronics manufacturing,” they add. “Based on our estimates, any y-o-y growth below +2.8% in 3Q (vs. 4.2% in 2Q) will imply a negative q-o-q growth, tipping Singapore into a ‘technical recession’ (second straight quarter of %QoQ decline after –0.3% in 1Q).”
Despite the rising risks of Singapore entering into a recession, Chua and Lee are expecting the MAS to tighten monetary policy in October to counter the intensifying core inflation pressures by re-centring the S$NEER to the prevailing level.
“We are expecting the MAS to maintain the current slope of the appreciation bias, given the deteriorating growth outlook and rising recession risk,” they say.
July’s IP numbers point to ‘persistent challenges’ in global economic environment: ADDX
July’s manufacturing output figures point to “persistent challenges” in the global economic environment, especially in Singapore’s top export markets in both Asia and the West, says Cheryl Chan, senior vice president for capital markets at ADDX.
One major factor is the tepid performance of the Chinese economy, with Singapore’s exports to China falling y-o-y by 21.3% in July.
Another factor is the uncertain economic outlook for the global economy, especially for the US and Europe.
“The tightening of monetary policy in the West to control inflation and the war in Ukraine have threatened to trigger a full-scale recession,” says Chan.
Still, there are reasons to remain “cautiously optimistic,” she adds. “International travel is reopening, which has contributed to the rise in transport engineering output in July’s numbers.”
“An easing of restrictions on Singapore firms in hiring foreign workers will also make it easier for companies to fulfil orders. And despite poor GDP performance in the US, the country’s unemployment remains at 3.5%, the lowest it has been for two-and-a-half years,” she continues.
On this, Chan is remaining “hopeful” about the medium-term outlook for Singapore’s manufacturing output “barring a drastic change in the global environment”.
