Manufacturing decline eases, with positive growth expected next year

For now the sector still remains bogged down by electronics and decline in semiconductor output. PHOTO: LIANHE ZAOBAO

Singapore's manufacturing decline eased slightly in the third quarter, with the sector expected to return to positive growth next year.

Services growth, however, slowed to a decade-low, mainly weighed down by trade-related sectors, including wholesale and retail trade, according to Ministry of Trade and Industry (MTI) figures yesterday.

The projected uptick in manufacturing follows three consecutive quarters of negative growth. It shrank 1.7 per cent year on year this time, up from a 3.3 per cent fall.

Economists agreed there is light on the horizon for the manufacturing sector after its downturn.

Citi economists Kit Wei Zheng and Ang Kai Wei expect manufacturing to recover next year with cyclical improvement in global semiconductor demand.

Maybank Kim Eng economists Chua Hak Bin and Lee Ju Ye added that global Purchasing Managers' Index, a key barometer of activity among manufacturers, has been improving after reaching a trough in July, with China and the United States seeing the strongest uptick.

Singapore Semiconductor Industry Association executive director Ang Wee Seng said: "The industry remains resilient and cautiously optimistic that there will be a brighter year ahead due to the demand push by upcoming technologies such as 5G and the automotive sector. A 5G roll-out will drive the growth of many supporting products and infrastructure that require semiconductor chip sets."

But he cautioned that uncertainty remains because of the US-China trade tension.

Mr Christopher Ng, chief executive of smart sanitary solution manufacturer Rigel, said the global economy continues to be gloomy, but the company is still expanding into regional markets and growing its research and development workforce.

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"We expect the number of our orders to improve due to these expansion activities."

For now the sector still remains bogged down by electronics and decline in semiconductor output. All other clusters under it expanded in the third quarter, with a boost on the biomedical front.

OCBC Bank's head of treasury research and strategy Selena Ling noted that pharmaceuticals tend to be volatile given the nature of production runs, adding that the current situation is more of a "stabilisation story from a very low base".

Barclays economist Brian Tan cited a cautious growth outlook "from a growing divergence between the exports and production of electronics; while exports have been rebounding since June, industrial production continued to sink lower to September".

Ms Ling also said the pickup in electronics is unlikely to be very strong, given that global demand conditions still look fairly weak.

The International Monetary Fund's recent financial stability report suggested it believes the world economy escaped a recession mainly due to significant monetary policy easing that took place, she added.

This means central banks may be concerned about preserving their remaining policy space in case of a more significant downturn, and the question now is whether fiscal stimulus will step up, said Ms Ling.

Singapore's growth drivers and drags also largely remained unchanged in the third quarter.

Services grew 0.9 per cent year on year, supported by finance and insurance which grew 4.3 per cent, information and communications which expanded 3.4 per cent and other services which saw growth of 2.8 per cent. These provided some cushion against the 3.3 per cent decline in wholesale and retail trade.

Construction remained a bright spot, expanding 2.9 per cent from a year ago.

Ms Yong Yik Wei, director of the economics division at MTI, said sustained growth is expected next year and about 60 per cent of output will be from public sector construction demand.

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A version of this article appeared in the print edition of The Straits Times on November 22, 2019, with the headline Manufacturing decline eases, with positive growth expected next year. Subscribe