SINGAPORE: Singapore’s manufacturing output slumped 3.6 per cent in July from a year ago, contracting for the first time in five months, underlining concerns surrounding the country’s economic outlook.
July’s reading also marked the biggest slump since Dec 2015, when factory output shrunk 11.9 per cent on a year-on-year basis, according to figures released by the Economic Development Board (EDB) on Friday (Aug 26). Economists polled by Reuters had expected a rise of 0.9 per cent on-year.
On a month-on-month and seasonally adjusted basis, factory output plunged 4.0 per cent in July, significantly higher than a forecast of minus 1.1 per cent.
The weaker-than-expected number “reinforced our negative view on the Singapore economy”, said Credit Suisse economist Michael Wan. He added that Friday’s economic data implied a weak gross domestic product (GDP) figure for the third quarter at around 1 per cent year-on-year, a moderation from economic growth of 2.1 per cent in the second quarter.
For Citi economist Kit Wei Zheng, “the risks of growth undershooting the already downshifted official expectations may have increased”. Earlier this month, the Ministry of Trade and Industry (MTI) had narrowed the growth forecast for Singapore’s economy in 2016 to between 1 and 2 per cent, down from the initial range of between 1 and 3 per cent.
Such anaemic growth would mean that the Monetary Authority of Singapore (MAS) could ease monetary policy in October, by re-centering its exchange rate policy band lower, said Mr Wan.
Earlier this year, the central bank unexpectedly eased monetary policy in a move to stoke growth momentum, but had reiterated in July that there was no need to change its current monetary policy stance unless there was a marked deterioration in the global economy, or a significant shift in the inflation outlook.
Excluding biomedical manufacturing, factory output fell 2 per cent year-on-year in July. Output from the biomedical manufacturing cluster had contracted 9.7 per cent compared to a year ago, with a 6.3 per cent rise in the medical technological segment unable to make up for the 14.1 percent fall in the pharmaceuticals segment.
Among the worst performers, the transport engineering sector’s output shrank 21.8 per cent, as the marine and offshore engineering segment contracted 33.4 per cent on the back of weak rig-building activities and demand for oilfield and gasfield equipment amid low oil prices.
The chemicals cluster’s output fell 3.2 per cent on a year-on-year basis, while the precision engineering cluster decreased 4.9 per cent in July. Output from the general manufacturing industries cluster fell 10.2 per cent compared to the year-ago period.
Lower level of rig building activity continued to weigh on transport engineering, while precision engineering remained downbeat due to fewer machinery orders, analysts said.
Bucking the downtrend, output from the electronics sector rose 16.2 per cent on-year, boosted by a 34 per cent surge in the semiconductor segment though this was partially offset by declines in the rest of the electronics segment.
However, Credit Suisse’s Mr Wan noted that even the strength in the electronics sector is showing some signs of moderation from the previous month's 19 per cent gain.
As such, analysts largely tip a gloomy outlook for the all-important manufacturing sector, which has been a huge drag on Singapore's economic growth.
Given ongoing tepid external demand conditions, OCBC Bank's Head of Treasury Research & Strategy Selena Ling expects third-quarter domestic manufacturing growth to see a contraction of 1.7 per cent on-year, a reversal from the 1.1 per cent growth in the April to June quarter.
Data from last week also revealed a deepening export slump, with non-oil domestic exports (NODX) plunging 10.6 per cent on-year last month, widening from a 2.4 per cent drop in June.