Singapore’s industrial production surprises with 0.1 pct y/y growth in September

Singapore’s industrial production surprised on the upside with a 0.1 percent y/y growth (+3.7 percent m/m sa) versus our forecast for a 2.6 percent y/y contraction (+4.7 percent m/m sa) and the Bloomberg consensus forecast of -4.8 percent y/y (-0.9 percent m/m sa), OCBC Treasury Research reported.

In addition, the July reading was also revised up from -0.1 percent y/y to +1.2 percent y/y. This suggests that 2Q19 (-3.3 percent y/y) may have potentially marked the bottom for the current manufacturing slowdown.

Pharmaceuticals rode to the rescue. The uplift came mainly from the biomedical cluster which surged 21.9 percent y/y in September. In particular, the pharmaceuticals segment saw a 26.2 percent y/y surge in September amid increased production of active pharmaceutical ingredients, following a 13.3 percent y/y jump in August. Excluding the biomedical cluster, manufacturing output shrank 4.3 percent y/y (+5.9 percent m/m sa).

Electronics output continued to contract but by a milder 9.6 percent y/y in September, versus the -25.0 percent print in August. Apart from the semiconductors (-13.0 percent y/y), computer peripherals (-10.4 percent y/y), and other electronics modules (-5.0 percent y/y) which still declined, there was a sharp pickup in output momentum for the info-communications and consumer electronics segment (from -4.0 percent to +15.0 percent y/y) while the data storage segment also sustained its fourth month of expansion (+16.1 percent y/y).

Accordingly, the precision engineering output also rose 4.0 percent y/y, as higher output of machinery & systems (+11.9 percent y/y, including front-end semiconductor equipment) offset the decline in precision modules & components (-6.5 percent y/y). US tech companies also suggested a more upbeat guidance which could bode well for the electronics industry notwithstanding the ongoing US-China trade war.

Other segments’ performance remained very mixed. The transport engineering segment saw its second straight month of output growth at 3.0 percent y/y, attributed to aerospace (+39.0 percent y/y due to more repair and commercial maintenance jobs) and land transport (+18.0 percent y/y) whereas the marine & offshore engineering industry remained in the doldrums (-27.3 percent y/y). However, the chemicals (-3.9 percent y/y) and general manufacturing (-7.4 percent y/y) clusters continued to see output shrink in September.

Confirmation of no technical recession in 3Q19. With the upward revision in the July and August industrial output data and the upside surprise in the September manufacturing data, it now looks increasingly clear that the Singapore economy has escaped a technical recession in 3Q19. 

With manufacturing output declining just 1.7 percent y/y in 3Q19 versus the flash estimate of -3.5 percent y/y, the flash 2Q19 GDP growth estimate is likely to be revised higher from the initial 0.1  y/y (0.6 percent q/q saar) to 0.5 percent y/y (+2.1 percent q/q saar).

"In turn, the full-year 2019 manufacturing growth contraction may come in at a more modest 2.0 percent y/y (previously estimated at -2.7 percent y/y), which could imply the 2019 GDP growth closer to the mid-range of the official 0-1 percent y/y forecast ie. 0.5 percent y/y," the report further commented.