Manufacturing output headline growth rate could potentially stumble: analysts

The industry could suffer a technical recession.

Singapore’s manufacturing output fell to only 0.6% in July compared to 2.6% in June which could spell trouble for its headline growth rate, several analysts said.

Singapore’s manufacturing output increased 0.6% in July 2022 on a year-on-year (YoY) basis. Excluding biomedical manufacturing, output grew 2.9%. On a three-month moving average basis, manufacturing output rose 4.3% in July 2022, compared to a year ago. On a seasonally adjusted month-on-month (MoM) basis, manufacturing output decreased by 2.3%. Excluding biomedical manufacturing, output declined 1.1%.

A UOB analyst report predicts that Singapore’s manufacturing industry would have grown by 4.5% however it has prompted caution due to the faltering performance of the electronics segment which fell by 6.3% in July. This is despite a ‘cautiously positive’ outlook for transport engineering, general manufacturing, and precision engineering, which all saw double-digit percentage growths in July.

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“We maintain our industrial production (IP) growth forecast at 4.5% in 2022 but we note 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. 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 Dec 2021,” UOB said.

Meanwhile, Maybank Securities Singapore predicts that the manufacturing sector’s growth will stagnate and dip below zero for some months in the second half (H2) of 2022.

Maybank said that the electronics segment decreases will offset any growth from other performing segments, affecting even gross domestic product (GDP) in H2.

Risks of a technical recession - defined as two consecutive quarters of quarter-on-quarter (QoQ) contraction, have risen with the sudden and sharp downturn in electronics manufacturing. Based on our estimates, any year-on-year growth below +2.8% in 3Q (vs. 4.2% in 2Q) will imply a negative QoQ growth, tipping Singapore into a “technical recession,” Maybank said.

Singapore’s softening marketing output growth in July points to persistent challenges in the global economic environment, especially in Singapore’s top export markets in both Asia and the West,  said Cheryl Chan, Senior Vice President for Capital Markets at ADDX 

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Chan pointed out that the major factor in the softening of the manufacturing industry’s growth is the tepid performance of the Chinese economy, showing lower exports to China and Korea which contributed to the majority of the decline in electronics output. Singapore exports to China fell by 21.3% in July.

Another significant 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 has threatened to trigger a full-scale recession. 

“Still, there are reasons to remain cautiously optimistic. 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. Barring a drastic change in the global environment, we remain hopeful about the medium-term outlook for Singapore’s manufacturing output,” Chan said.