DESPITE manufacturing's prolonged decline, the sector is still important to the Singapore economy, said a senior government official, even as the Ministry of Trade and Industry (MTI) released data showing that manufacturing contracted more than expected in the fourth quarter.
The 6.7 per cent year-on-year contraction is sharper than the 6 per cent official estimate that MTI had given in January based on October and November data. This follows a 6 per cent year-on-year decline in Q3.
Weakness in production in the transport engineering and electronics clusters were again the reason behind the contraction.
For the full year, the manufacturing sector contracted by 5.2 per cent, a reversal from 2.7 per cent growth in 2014. All clusters except chemicals had declined in their output.
The outlook for the sector remains weak this year, MTI said on Wednesday.
Ow Foong Pheng, MTI permanent secretary, said: "Even though global growth is expected to improve, the continued slowdown in China, the services-driven nature of growth in the US as well as trends of in-sourcing in China and the US, may mean that external demand for our exporters may not see a significant boost this year."
Lower oil prices will also continue to roil the marine & offshore engineering sector, whose production suffered the most within Singapore's manufacturing sector last year, falling 18.4 per cent.
Prospects for new rig orders are weaker, while risks of further deferments and cancellations of existing orders have risen, Mrs Ow noted.
The ministry flagged possible spillover effects of lower oil prices on the precision engineering cluster, parts of which support the oil and gas industry.
Asked how big the impact might be, Mrs Ow said that the sector was quite diverse and supported many others. Firms that are supporting the oil & gas and the poorly-performing electronics industries are expected to be affected, but those that support medtech will do well, she added.
It is not all doom and gloom, however. Pharmaceutical companies, the demand for whose products comes largely from Europe, are among the bright spots, according to Mrs Ow.
The manufacturing sector remains important to Singapore as it diversifies the economy and provides good jobs for Singaporeans, she said. According to a new study by MTI, the sector employed about 510,000 workers as at December last year, and the nominal median income of its full-time workers rose by 5.4 per cent over the year to S$4,437.
The sector also has potential to grow. Foreign asset investment - many of which are manufacturing-related - rose to S$8.3 billion last year from S$6.8 billion in 2014 despite poor economic conditions, Mrs Ow pointed out.
"Essentially, as a sector, it is an important cluster that we will continue to grow and strengthen over time," she said. "And we think we have good fundamentals and a competitive advantage in this."
The manufacturing sector's share of GDP has grown to 19.8 per cent last year from 18.5 per cent in 2013.
It has outpaced others in its productivity growth, said Thien Kwee Eng, assistant managing director of the Economic Development Board (EDB). Real value-added per worker in manufacturing grew by 5.9 per cent from 2009 to last year, compared with the 2.2 per cent for the overall economy.
Said Ms Thien: "Given the focus on productivity, manufacturing will continue to have a big role to play to contribute on that in the national agenda."
Manufacturing also generates greater spillover effects on the rest of the economy compared to services.
According to the MTI study, an increase of S$1 million in final demand for manufacturing generates S$81,000 of non-manufacturing value-add and 0.65 non-manufacturing job. An equivalent increase for services will generate, in comparison, S$22,000 of non-services value-add and 0.27 non-services job.
The study further added that the strong manufacturing base in Singapore has led to the rise of high-value manufacturing-related services, both at the pre-production stage such as research and development as well as post-production activities such as logistics, marketing, maintenance and servicing.
Some firms even conduct such services, say product design, in Singapore and then carry out the manufacturing overseas, said MTI. These companies, called factory-less goods producing firms, are more commonly seen in the biomedical and electronics clusters in the manufacturing sector, and in the wholesale trade and business services industries in the services sector.
The government is also working to strengthen Singapore's capabilities in areas such as industrial data analytics and robotics, having set aside S$500 million for a five-year "Future of Manufacturing" plan by EDB in the 2013 Budget.
Said Mrs Ow: "We're making significant moves to make sure that we are relevant to the future."
This article was first published on Feb 25, 2016.
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