SINGAPORE - Singapore's factory sector in August saw its lowest rate of growth this year, coming in below market expectations, with general manufacturing output turning negative.
Factory output rose 3.3 per cent compared to a year ago, down from the revised 6.7 per cent growth in July, according to the latest Economic Development Board (EDB) data released on Wednesday (Sept 26).
The rise was smaller than the 4.7 per cent expansion expected by analysts polled by Bloomberg, with most clusters seeing slower growth and one seeing a fall in output.
CIMB Private Bank economist Song Seng Wun said the main reason for slowing growth is the "high base" of last year's strong manufacturing performance.
"What we are seeing now is a bit of a pullback, some of it perhaps also due to uncertainties of the impact of trade tensions in the coming months," he told The Straits Times, referring to tensions between the United States and China.
On Monday, further US tariffs on US$200 billion (S$273 billion) worth of Chinese goods kicked in, alongside Beijing's retaliatory taxes of US$60 billion worth of US products, causing uncertainty in markets.
Excluding the volatile biomedical manufacturing cluster, factory output grew 3.0 per cent in August.
On a seasonally adjusted month-on-month basis, it declined 2 per cent. Without biomedical manufacturing, production fell 3.4 per cent.
The key electronics sector continued to lose steam, growing 3.6 per cent mainly due to the other electronic modules and components, as well as semiconductors segments. This compares with growth of 8.0 per cent in June and 5.1 per cent in July.
Growth in the sector has been at its slowest pace since February 2016, said OCBC Bank's head of treasury research and strategy Selena Ling.
She added that "the electronics underperformance may not have ended yet", in part due to the strong manufacturing performance last year.
For the whole of 2017, electronics grew 33.5 per cent compared with the year before.
Nomura research analyst Euben Paracuelles said that the tech cycle appears to be on a downturn, with growth slipping after a strong run since 2016. He said output growth in the sector "appears to be converging with the weakness in electronics exports".
The biomedical manufacturing cluster grew 4.2 per cent in August, a sharp slowdown from growth of 10.4 per cent in July. Pharmaceutical output expanded 8.7 per cent but dropped 8.2 per cent for the medical technology segment.
Precision engineering was the only cluster to see faster growth in August. Its output rose 5.6 per cent compared to a year ago, up from 2.4 per cent in July, with the precision modules and components segment growing 16.5 per cent on account of higher production in optical instruments. By contrast, the machinery and systems segment fell 1.4 per cent due to lower export demand for semiconductor related equipment.
The chemicals cluster expanded by 5.7 per cent, with a higher output in fragrances. The specialties segment, in particular, rose 14.2 per cent as well compared to last year when it saw plant maintenance shutdown.
Transport engineering grew 4.7 per cent, with the marine and offshore engineering segment expanding by 15.4 per cent, given a higher level of work done in offshore projects. Other segments in transport such as aerospace rose 1.3 per cent, while the land transport fell 19.5 per cent.
All segments in general manufacturing saw declines, with output for the cluster falling 6 per cent compared to last year.
OCBC Bank's Ms Ling said there are probably still "downside risks" in the next two months, although economists are watching out for any short-term realignment of production chains to mitigate the US-China tariffs.
Mr Song from CIMB Private Banking added that it is likely Singapore will continue to see low single digit growth in coming months, with businesses and consumers resigned to the expectation that escalations in trade tensions may persisit for longer than expected.
One effect is that businesses may continue to "frontload orders", buying more ahead of expected tariff increases and supporting the manufacturing sector.
But even as growth for the rest of the year may still be positive, it is harder to predict if this will carry on in 2019 and beyond, he said: "What we may see today - growth - might be all given back next year."