Manufacturing shrinks in July amid weak demand

Factory output down 3.6%, faring far worse than expectations; electronics only bright spot

Manufacturing had a rough start to the second half of the year with weak global demand continuing to weigh on factory output.

The sector, which makes up a fifth of the economy, shrank 3.6 per cent in July compared with the same month last year, much worse than economists' expectations of 0.8 per cent growth.

The numbers from the Economic Development Board yesterday are the latest in a series of dismal economic data and follow recent trade figures that showed a 10.6 per cent drop in non-oil domestic exports last month.

All key clusters posted declines in output, except the electronics sector which expanded 16.2 per cent year on year thanks to the semiconductor industry.

"The electronics cluster is riding on the low base in the same period last year. Whichever way you look at it, the numbers look bleak," said DBS senior economist Irvin Seah.

Biomedical output, which accounts for the second-largest share of output after electronics, slumped 9.7 per cent year on year.

Excluding biomedical manufacturing, which had propelled overall output in the first half of the year, factory production fell 2 per cent.

"Now that pharmaceutical production has subsided, we are seeing a clearer picture of Singapore's weak manufacturing environment this year," noted HSBC economist Joseph Incalcaterra.

Chemicals output dropped 3.2 per cent year on year last month, while precision engineering declined 4.9 per cent and general manufacturing - including printing and food and beverages - fell 10.2 per cent.

Transport engineering posted the largest plunge of 21.8 per cent, dragged down by marine and offshore engineering amid low oil prices.

Yesterday's figures show also that manufacturing output - excluding biomedical - slumped 2.5 per cent in the first seven months of this year compared with the same period last year.

Domestic manufacturing growth could contract by 1.7 per cent year on year in the third quarter, reversing the 1.1 per cent "growth blip" seen in the second quarter, said OCBC economist Selena Ling.

"Manufacturing has been underperforming for a prolonged period and there really is no quick turnaround in sight due to the weak global demand and China slowdown," she said.

And should such sub-par manufacturing performance persist, there could be a gross domestic product contraction in the third quarter, Mr Seah of DBS added.

Mr Jeremy Fong, managing director of Fong's Engineering, said business from clients in the medical industry continues to grow, but trade on the non-medical side - including oil and gas, electronics and defence sectors - is poor.

"Thankfully, the medical industry now accounts for over 95 per cent of my revenue," said Mr Fong, who is also chairman of the Singapore Precision Engineering and Technology Association. "But other firms in my trade may not be doing so well. Those serving the oil and gas sector say things are getting worse."

This article was first published on August 27, 2016.
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