Singapore manufacturing gloom may extend into first half of 2023 with electronics still shaky

Electronics production grew 4.6 per cent, reversing the drop of 12.4 per cent in November and 0.7 per cent in October. ST PHOTO: CHONG JUN LIANG

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.

Output for infocomms and consumer electronics rose 16.9 per cent, while computer peripherals and data storage grew 0.9 per cent. 

But semiconductor production continued to shrink, dipping 0.3 per cent, while the other electronic modules and components segment tumbled 13.5 per cent on the back of softening demand. 

UOB senior economist Alvin Liew said the semiconductor rebound – the latest dip was better than November’s 14 per cent drop – is likely temporary. His bank expects manufacturing to contract by 5.4 per cent in 2023 due to the faltering outlook for electronics and weaker external demand.

Pointing to the continued decline of Asia-Pacific semiconductor sales, he said: “That does not bode well for semiconductor demand, while affirming the weak electronics outlook.”

Overall, the electronics cluster’s output grew 2.6 per cent in 2022.

Transport engineering output also grew, by 9.3 per cent in December, extending the 18.6 per cent growth in November and 6.8 per cent increase in October. 

The aerospace segment expanded 27.2 per cent with more maintenance, repair and overhaul jobs from commercial airlines on the back of increased global air traffic. 

But marine and offshore engineering dipped 0.5 per cent while the land segment shrank 18.6 per cent. The transport engineering cluster grew 18.8 per cent for the whole of 2022. 

Other sectors saw poorer performance in December. 

Biomedical manufacturing output declined 20.3 per cent, reversing the 9 per cent growth in November. 

The medical technology segment contracted 14.7 per cent with lower export demand for medical devices, while pharmaceuticals output fell 24.3 per cent due to a different mix of active ingredients being produced compared with a year ago.

Overall, the biomedical manufacturing cluster’s output dropped 5 per cent last year. 

Chemicals output also fell in December, by 9.5 per cent, extending the 11.4 per cent drop in November and 9.3 per cent decline in October. 

The petroleum segment grew 6.3 per cent, buoyed by higher demand for jet fuel, while other chemicals rose 4.4 per cent due to an increase in production of fragrances. But the specialities segment declined 7.1 per cent due to lower production of industrial gases and food additives. The petrochemicals segment also saw output fall, by 22.2 per cent, due to weak market demand and plant maintenance shutdowns. 

On the whole, the chemicals cluster’s output declined 5.5 per cent in 2022. 

General manufacturing output fell 2.8 per cent in December 2022, sharper than the 0.5 per cent dip in November and 0.7 per cent decline in October. But its output rose 10.1 per cent for the whole of last year. 

Precision engineering output dropped 4.1 per cent in December, after the 4.1 per cent growth in November and 19.6 per cent increase in October. Its output rose 6.3 per cent in 2022.

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