Singaporean industrial production drops further in August

Singaporean industrial production dropped in August. On a year-on-year basis, industrial production fell 8 percent, as compared with consensus expectation of a fall of 0.6 percent. Sequentially, industrial production dropped 7.5 percent. The August’s year-on-year print is the worst since December 2015 and this is also a deterioration from the upwardly revised of a drop of 0.1 percent year-on-year in July.

Given that the U.S.-China trade war continues to be at a stalemate between hope and gloom, partially depending on Trump’s tweets, even the prospect of a mini trade deal pending the early October trade talks might not suffice to lift the domestic manufacturing sector for now, noted Selena Ling, Head of Treasury Research & Strategy, OCBC Bank.

Electronics weighed on the headline figure, falling 24.4 percent year-on-year in August, after coming in flat in July which gave rise to earlier hopes that the electronics industry had bottomed. The August print implies that an electronics recovery optimism was likely premature, given softness in semiconductors, computer peripherals and other electronics modules which outweighed improvements in the data storage segments. Precision engineering segment contracted in the month, dropping 13.6 percent year-on-year.

The biomedical cluster grew 10.6 percent year-on-year, led by pharmaceuticals. Both the chemicals and general manufacturing clusters also grew for the second consecutive month by 2.7 percent and 5.8 percent year-on-year, respectively. The transport engineering output also grew 0.5 percent year-on-year led by aerospace and land transport activities which counter the sustained softness in marine & offshore engineering output.

Manufacturing and electronics PMIs saw marginal rebound to 49.9 and 49.4 respectively in August, but remained in contraction territory.

“Hence, notwithstanding a lower manufacturing base in 2H 2018, the ongoing weakness in manufacturing, especially electronics, is likely to sustain into 4Q19, especially with no conviction that a global demand recovery is round the corner. For now, our view remains that the Singapore economy may still narrowly escape a technical recession, assuming that September manufacturing output does not deteriorate further to a double-digit yoy decline,” said Selena Ling.