It’s a gloomy picture on the data front in Singapore

Singapore's industrial production figures for December2015 due today will most likely disappoint while the latest CPI inflation released yesterday delivered the lowest full-year inflation reading in 29 years! 

A big disappointment on December industrial output could be on the cards judging from the recent figures on the non-oil domestic export (NODX) and PMIs. Headline NODX for the month fell by 7.2% (YoY). On a month-onmonth basis, it slipped 3.1% compared to the previous month. This is a broadbased decline, which reflects a challenging external environment arising from the slowdown in China and an uneven recovery in the US. 

Signals from the PMIs have been mixed. While the production sub-index for both manufacturing and electronics PMIs have picked up, it was marred by mixed showings in new orders (including export orders) indices. Though there has been marginal improvement in the overall PMIs, it is unlikely to be sustainable. Global demand is still weak, which will continue to weigh down on the outlook for the manufacturing sector in the coming months. 

"We expect the headline IP number to come in at -9.2 (YoY). This will be significantly lower than the -7.8% factored into the advance GDP estimates. Indeed, this will bring overall manufacturing growth for the quarter down to -6.5% instead of the projected -6.0%. And this will implies a downward revision to the headline GDP growth by about 0.2%-pt", says DBS Group Research.

The CPI inflation has remained stuck in the negative territory. Headline number for December registered -0.6% (YoY), up marginally from -0.8% in the previous month. Slump in oil prices, lower rentals and COE premiums remained the main drivers for the negative inflation. Overall full-year inflation for 2015 now stands at -0.5%. This is Singapore's first full-year negative inflation since 2002 (-0.4%) and also the lowest in 29 years (1986: -1.4%). 

A whole slew of supply-side policy measures and economic slowdown have weighed down on domestic inflation. Externally, energy and commodity prices have slumped on the back of an uncertain global outlook. Crude oil is trading around USD 30/bbl given a ballooning supply glut. And deceleration in China will add more disinflationary pressure in the global environment. A strong recovery in the US or the Eurozone is unlikely at this juncture, and thus, global deflationary pressure will continue to take hold. 

The risks in the global economy and their corresponding impact on global energy and commodity prices have significantly lowered the inflation trajectory for the economy. Moreover, domestic wage pressure arising from the labour crunch has also dissipated given the dicey growth outlook. Note retrenchment numbers have picked up last year as well compared to 2014. 

The CPI inflation is expected to remain in the red until the middle of this year, before base effect brings the headline number marginally above water. Full-year inflation is likely to average 0.5% in 2016, with risk on the downside.