Cyclical recovery expected in Singapore's electronics sector

Singapore's June industrial production came in much weaker than expected. The industrial production declining by 4.4% y/y, or 3.3% m/m sa.

Despite the recent pickup in electronics exports and the PMI, electronics production unexpectedly contracted 4.8% m/m sa, bringing output to the weakest level since March 2013. The main drag, however, came from a plunge in transport engineering, with the EDB citing weak demand for engine repair work in the aerospace sector as the main driver of the decline. These factors more than offset a continued rebound in pharmaceuticals and a pickup in chemicals. 

Barclays says overal performance in electronics was disappointing, but although non-electronics sectors are becoming structurally larger drivers of manufacturing growth, a cyclical recovery is expected in electronics in the months ahead, consistent with the stronger external environment and the rise in the PMI to a five-month high in June. The bank added, in the near term however, the weak June IP print reduces the likelihood of a significant upward revision to Q2 GDP when the second estimate is released next month (17-21 August).