Sharp slowdown in manufacturing growth in June

Singapore's manufacturing output increased last month but at a much slower pace with semiconductor production shrinking, according to figures released by the Economic Development Board (EDB) yesterday.

Factory output rose by a marginal 2.2 per cent last month on a year-on-year basis, coming in below the 5.4 per cent increase projected by economists polled by Bloomberg.

It was also a sharp slowdown from the 10.4 per cent expansion logged in May. May's number was itself revised down substantially from the initial 13.8 per cent growth estimate.

Excluding the volatile biomedical manufacturing sector, output grew 4.2 per cent last month.

OCBC Bank's chief economist Selena Ling noted that the global electronics industry has slowed.

"The domestic electronics moderation in growth momentum is quite stark while the chemicals output has shrunk for five of the last six months this year, so it is unsurprising that industrial production data is starting to disappoint," she said.

Maybank Kim Eng economists Chua Hak Bin and Lee Ju Ye said slowing consumer demand for personal computers and smartphones may be weighing on chips.

"The global chip shortage seems to have peaked, with lead times - the gap between when a semiconductor is ordered and when it is delivered - falling to 27 weeks in June," they said.

But Ms Ling said the saving grace for manufacturing is that transport engineering is getting a second wind with the pickup in maintenance, repair and operations activity as international travel resumes.

She expects manufacturing growth to hover in the low single-digit growth range.

"With the recession fears, there may be a lot more tightening of belts across businesses in terms of their information technology budgets and also for consumer demand for electronics products. The big US tech firms are already talking about slowing or freezing hiring, so there may be cascading effects on market sentiments and consumer confidence," she said.

The key electronics sector expanded 2.3 per cent last month, down from 22.9 per cent in May.

Semiconductor output shrank 2.6 per cent after surging 32.1 per cent in May.

The infocomms and consumer electronics segment saw increases of 38.3 per cent, while the computer peripherals and data storage segments recorded output growth of 4.7 per cent.

Biomedical output declined 9.2 per cent year on year last month. While the medical technology segment grew 14.3 per cent with higher demand for medical devices from the United States and China, the pharmaceuticals segment contracted 24.9 per cent due to a different mix of active pharmaceutical ingredients being produced.

Chemicals output also suffered last month, falling by 11 per cent.

"The petrochemicals segment recorded lower production amid plant maintenance shutdowns, while the other chemicals segment reported lower output of fragrances," said EDB.

The other industries in manufacturing such as transport engineering recorded increases in output compared with a year ago.

The aerospace segment grew by 32.2 per cent on account of higher production of aircraft parts and more maintenance, repair and overhaul jobs from commercial airlines with the easing of global air travel restrictions, EDB said.

But the outlook remains uncertain, with UOB senior economist Alvin Liew expecting gross domestic product growth for the second quarter to be revised by 0.3 percentage point to 4.5 per cent year on year, taking into account the lowered manufacturing expansion.

Advance estimates on July 14 put Singapore's economic growth at 4.8 per cent year on year in the second quarter.

Mr Liew added that the Russia-Ukraine conflict, disruptions to global transportation and regional supply chains, monetary policy tightening and a resurgence in Covid-19 cases could dampen growth in the manufacturing sector.