S'pore factory output shrinks 3.1% in December, less than expected as electronics reverses fall - The Straits Times

SINGAPORE – Singapore’s manufacturing output shrank for a third consecutive month in December, although not as steeply as feared. Analysts expect the lacklustre performance to continue for some time.

Output last month fell 3.1 per cent year on year, dragged down by volatile biomedical production even as electronics turned positive, according to data released by the Economic Development Board (EDB) on Thursday. Excluding biomedical manufacturing, output edged up 0.3 per cent.

Overall production performed better than the 6.9 per cent contraction forecast by analysts in a Bloomberg poll. It was also a slight improvement on the 3.8 per cent fall in November. Production shrank for the first time in a year in October on a slump in pharmaceuticals production and weakness in the linchpin electronics sector.

OCBC Bank chief economist Selena Ling said it was too early to bring out the champagne, although December’s manufacturing numbers were better than expected.

“It could potentially get worse in the first quarter of 2023 before it gets better in the second to fourth quarters,” she said, noting that growth was limited to transport engineering and electronics, and that the global chips sector may not be out of the woods yet.”

She added: “Recent news suggests that Japan and Netherlands may join US efforts to restrict tech exports to China by as early as end-January. Global recession and demand slowdown risks also remain prevalent, so demand from major markets like the US, EU and UK may stay soft in the near term.”

RHB senior economist Barnabas Gan said the outlook for manufacturing will likely be lacklustre at least in the first half of 2023.

“We remain cautious about China given economic headwinds, since it’s the biggest buyer globally of chips and petrochemicals... But there is a silver lining for manufacturing in F&B (food and beverage) and aviation as the gradual opening of borders has helped these industries,” said Mr Gan, who expects manufacturing to expand by 0 per cent to 2 per cent for the whole of this year.

Total output grew by 2.5 per cent last year, or 4 per cent excluding biomedical manufacturing, according to the EDB data.

Maybank economists Chua Hak Bin and Lee Ju Ye also expect manufacturing to continue declining in the first half of 2023, mainly due to electronics, but said the industry’s downturn might be shallow.

“China’s reopening could help cushion the downturn from the US and Europe, and reduce the odds of a recession,” they said.

For December, electronics output grew 4.6 per cent, reversing falls of 12.4 per cent in November and 0.7 per cent in October.

The sector accounts for 40 per cent of Singapore’s export-driven manufacturing sector and thus is key to economic growth.

Dr Chua and Ms Lee said electronics grew for the first time in six months to record its highest output since May 2022.

“We think the positive print is encouraging but may not last, as semiconductors will likely fall at a steeper pace in the first half of 2023 on the back of weaker global demand and also relative to last year’s high base,” they said.

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