Singapore’s manufacturing output surged 17.6% y-o-y in February, surpassing market estimates of a 6.3% y-o-y increase, according to data released by the Singapore Economic Development Board (EDB) on March 25.
The strong performance is underpinned by the recovery in global trade, especially on the back of healthy demand in the semiconductor and biomedical segments, says UOB economist Barnabas Gan.
“Other factors that have supported Singapore’s manufacturing momentum also include the gradual reopening of international borders, which resulted in higher levels of maintenance, repair and overhaul activity from commercial airlines,” he adds.
On a seasonally adjusted month-on-month basis, manufacturing output for the country increased by 16.6%.
Excluding biomedical manufacturing, output grew 16.8% y-o-y and 12.3% m-o-m.
During the month, the electronics cluster grew 32.4% y-o-y due to output expansions across all segments. The semiconductor segment grew 39.4% y-o-y due to strong demand from 5G markets and data centres, while the electronics cluster grew 15.0% y-o-y.
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Output for biomedical manufacturing increased by 25.3% y-o-y in February, with the pharmaceuticals segment expanding 46.7% y-o-y due to higher production of biological products and a different mix of active pharmaceutical ingredients. The medical technology segment also expanded 5.8% y-o-y with higher export demand for medical devices.
General manufacturing output rose 12.6% y-o-y with all segments including an output increase. This was led by the food, beverage & tobacco segment, which expanded 12.8% y-o-y.
Output for transport engineering grew 4.5% y-o-y, with the aerospace segment expanding by 11.3% y-o-y and the marine & offshore engineering segment increasing by 0.9% y-o-y.
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Output for precision engineering rose 1.0% y-o-y amid the 8.7% y-o-y decline in output for the precision modules & components segment. This was offset by the 6.1% y-o-y expansion logged in the machinery & systems segment.
Chemicals output was the only one to register declines in February, extending its decline from January. During the month, petroleum refining throughput increased 14.8% from the low production base in February 2021, although this was offset by the contractions in the specialties, petrochemicals and other chemicals segments at 2.0%, 3.1% and 8.8% respectively.
In his report, UOB’s Gan says Singapore remains well-positioned to transit into a situation where we live with Covid-19 as an endemic.
“While the easing of restrictions [announced by prime minister Lee Hsien Loong on March 24] will be beneficial especially to Singapore’s hospitality and services industries, there should also be positive spill-over effects to Singapore’s overall growth dynamics from these measures,” writes Gan.
“A more direct impact to Singapore’s manufacturing prognosis will likely stem from the gradual returning of vaccinated travellers into Singapore without the need for Vaccinated Travel Lanes (VTL) flights,” he adds. “With the easing of restrictions for inbound travellers, this could eventually lead to an increase in labour supply to augment Singapore’s labour-intensive industries such as maritime, construction and selected manufacturing industries.”
On this, Gan has maintained his estimate of a 4.0% growth for the manufacturing sector in the FY2022.
“This suggests that despite the high-base growth rate seen in 2021, global trade activity is expected to stay buoyant this year,” he writes. “While geopolitical and Covid-19 risks are present at this juncture, we take comfort from the ongoing global economic momentum, coupled with a strong global trade backdrop and higher Covid-19 vaccination rates in Singapore.
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In addition, Gan is buoyant on Singapore’s manufacturing sector for the year ahead, with the recovery especially in the transport engineering sector being “exceptionally encouraging”.
“[The recovery] may stay supported by the gradual reopening of international borders. Moreover, the global economic momentum into 2022 is likely to support other growth-related industries such as general manufacturing, chemicals, electronics and precision engineering, while the ongoing Covid-19 cases could still lend some strength to Singapore’s volatile biomedical manufacturing arm,” he says.
Meanwhile, amid the geopolitical tensions and the uncertainty surrounding the war in Ukraine, Gan is “moderately concerned over the second-order trade impact to Russia’s top trading partners, including China, Europe, US and Japan”.
OCBC’s chief economist and head of treasury research & strategy, Selena Ling, has also kept her manufacturing growth forecast for 2022 unchanged at 3.5%.
According to Ling, this is due to the high base in 2021, and due to the current headwinds from the heightened geopolitical uncertainties, sustained inflation and supply chain disruptions.
“It is worth noting the Ukraine war really started late February and into March, so the full impact may not have been felt yet. Manufacturers usually have some inventory buffer which they will draw down first,” she says.
“However, we may find out very soon if the hit to Eurozone growth and supply chain bottlenecks will crack soon since the war is now dragging into the second month. Moreover global growth forecasts are already being pared lower, especially for the major economies including the US, Eurozone etc. Hence there may be some volatility showing up in the economic data including manufacturing in the coming months,” Ling adds. “The silver lining is the relaxation of many travel restrictions within the region including Singapore, which may give the maintenance, repair, and overhaul (MRO) demand a lift ahead.”
February’s growth is close to Ling’s initial forecast of 17.2% y-o-y.
“For the first two months of 2022, industrial production is off to a good start at 9.4% y-o-y, but may moderate in the coming months as the impact from the Russian-Ukraine conflict begin to exact a toll via the supply chain conduit and also higher inflation for imports of key components and raw materials,” she says.
For JP Morgan analyst Nur Raisah Rasid, February’s manufacturing figures stood slightly weaker than her expectations of a 17.6% y-o-y expansion.
“Through the month-to-month volatility in tech and biomedical output, production excluding biomedical and electronics tends to be a useful bellwether of broader capital spending and this indicator fell a modest 0.2 % m-o-m on a seasonally adjusted basis but was up 15.3% quarter-on-quarter in sequential terms,” notes the analyst.
In her report, Rasid also noted the encouraging signs for non-goods recovery.
“While there could be near-term growth undulations emanating from global growth spillovers, the gradual policy shift to an endemic equilibrium - permitting the loosening between new Covid-19 cases and stringency as is apparent in the recent data gives us confidence that the recovery in non-goods activity should be relatively uninterrupted particularly following the announcement this week of the broad loosening in Covid-19 restrictions,” she writes.
