Tepid recovery awaits manufacturing sector in 2H23

Industrial production contracted 4.9% YoY in June.

Analysts believe that the manufacturing sector momentum will improve in 2H23, recovering to positive territories in 4Q23. 

“While manufacturing annual growth remains on a negative path, it is encouraging to note that sequential growth has moved decidedly higher year-to-date, in line with the green shoots seen in ASEAN-centric economic data. We think these green shoots will turn into trees in the next two months, with the recovery of global trade and manufacturing momentum to persist in 2H23,” RHB Senior Economist Barnabas Gan said.

UOB Senior Economist Alvin Liew, for his part, said he is heartened by the surprise rebound in semiconductors output in June, but underscored that it may be “ too soon to call for a turnaround in the electronics downcycle.”

In June, the semiconductor segment recorded a 3.1% YoY growth in output.

Whilst industrial production (IP) has contracted 6.3% year-to-date, Liew believes that the full-year manufacturing output will only contract by 5.4%, implying a “tepid recovery profile in 2H.”

Meanwhile, Gan said the June IP will likely “do little to move the needle in terms of Singapore’s final GDP data scheduled in August.”

“The advance estimates suggested that Singapore had narrowly avoided a technical recession at +0.7% YoY. Note that the estimates pencilled in 2Q23 manufacturing growth at -7.5% YoY, translating into a -5.1% YoY print for June’s IP, against today’s empirical -4.9% YoY handle,” Gan said.

“As such, the empirical print, which is very close to the advance estimates for June 2023, suggests that Singapore could indeed avoid a technical recession, based on today’s manufacturing data, assuming ceteris paribus. We are still of the view that 2Q23 GDP may be at a marginal risk of being revised lower in August,” he added.