Singapore electronics to get a cyclical lift in H2

The main drag on Singapore July IP was an 4.2% m/m sa drop in the biomedical cluster, which subtracted 2.4pp from headline IP growth. This was driven by the 18% y/y drop in pharmaceuticals segmen, offsetting the 10.0% y/y expansion in medical technology. 

Electronics also underperformed, subtracting 2.0pp from y/y output growth. Semiconductors remain the principal source of weakness in the sector, with output falling 12.0% y/y in July, likely weighed by inventory overhang, which has led to precautionary trimming of excess inventories across the supply chains in North Asia in recent months. 

"Overall, despite the weakness in July, the electronics sector is expected to get a cyclical lift in H2, while the structural outperformance of non-electronics sectors is likely to continue. Against this backdrop, and with the persistent labour market tightness likely to stoke core services inflation, we continue to expect the MAS to keep its policy unchanged in October", says Barclays. 

The weakness in rig-building and shipbuilding also persists, with output falling another 10.2% y/y. Partly offsetting the weakness in these sectors was the chemicals sector, which contributed 0.5pp to the headline growth, led by specialty chemicals. Chemicals output should get a further boost from September, as the USD2.5bn Jurong Aromatics Corp cracker resumes production. 

"In the interim, with sentiment in emerging markets remaining cautious, the SGD NEER is expected to hover closer to the bottom of the trading band ahead of the October MPS meeting", added Barclays.