As Singapore's manufacturing slowdown continued in the second quarter this year, its key sectors of construction and services took a hit as well, surprising economists, who warned of further spillovers.
Ministry of Trade and Industry advance estimates showed yesterday that manufacturing - due to output declines in electronics and precision engineering - was the main drag on overall economic growth. It contracted for the second straight quarter by 3.8 per cent year on year, extending its 0.4 per cent decline in the first three months. Overall economic growth was 0.1 per cent from a year ago, a far cry from 1.1 per cent in the first quarter.
OCBC Bank's head of treasury research and strategy Selena Ling said manufacturing's underperformance was likely worsened by a trade impasse between the United States and China last month, in the lead-up to their leaders' meeting at the Group of 20 summit.
This was coupled with "possible knee-jerk reactions" in supply chain activities after restrictions on US companies selling to Chinese technology giant Huawei in May.
She noted that trade issues are likely to continue, with US President Donald Trump tweeting overnight that China was letting the US down by not buying the agricultural products that it said it would.
Maybank Kim Eng economists Chua Hak Bin and Lee Ju Ye expect the manufacturing outlook to remain bleak as the US-China trade war broadens to export controls, which could worsen the supply chain disruption. "The latest tech conflict between Japan and South Korea could also exacerbate the tech downcycle," they said in a note yesterday. ING chief economist Robert Carnell said: "The longer the manufacturing sector remains depressed, the more likely this weakness will spill over into services and other sectors."
Meanwhile, the construction sector shrank 7.6 per cent from the last quarter and services producing industries fell by 1.5 per cent, though both grew compared to last year. Construction also faces the risk of more housing market cooling measures ahead, said Barclays regional economist Brian Tan, especially if private residential property prices keep rising in the third quarter.
But Deputy Prime Minister Heng Swee Keat maintained that sectors such as construction, as well as information and communications, remain areas of strength.
"We must continue to focus on the medium and long term, even as we tackle the short-term challenges posed by the current economic cycle and help those affected," he said. "The Future Economy Council will continue with our industry transformation plans, build stronger enterprise capabilities and make the most of the opportunities around us."