Better factory data but economists divided on whether Singapore will dodge technical recession

Factory output contracted for the third consecutive month, but beat analysts' forecasts by a mile with a decline of just 0.4 per cent over July last year.
Factory output contracted for the third consecutive month, but beat analysts' forecasts by a mile with a decline of just 0.4 per cent over July last year. PHOTO: LIANHE ZAOBAO

Economists continued to have mixed views about the possibility of a technical recession here, even as the manufacturing sector performed far better than expected last month.

Factory output contracted for the third consecutive month, but beat analysts' forecasts by a mile with a decline of just 0.4 per cent over July last year.

Analysts polled by Bloomberg had expected a 5.8 per cent slump.

The figure was also a marked improvement from the 8.1 per cent plunge in June - the sector's worst showing in 3½ years.

If the volatile biomedical manufacturing sector is excluded, the fall in output last month was slightly steeper at 0.7 per cent, according to preliminary Economic Development Board (EDB) data yesterday.

UOB economist Barnabas Gan sees output growth stabilising this quarter: "The better-than-expected... pace in July reinforces our view for Singapore to evade a technical recession in (the third quarter)."

But Maybank Kim Eng economists Chua Hak Bin and Lee Ju Ye expect a technical recession.

They said the next wave of United States tariffs next month and in December will be more destructive for global electronics demand as a larger proportion will be on consumer goods than in the first wave.

Electronics, which makes up over a quarter of factory production here, contracted 0.9 per cent last month, performing far better than the previous month when it fell 18.2 per cent.

The semiconductor segment rebounded with 0.3 per cent growth in output, after a drop of 21.4 per cent in June.

Electronics output was down 5.6 per cent between January and July over the same period last year.

DBS senior economist Irvin Seah said it remains to be seen whether the improvement last month is due to front-loading of orders or a sustainable increase in demand.

 
 
 

Mr Seah added that although growth in the global semiconductor equipment order book turned around recently, which could suggest a light at the end of the tunnel for this cluster, "the most recent developments in the trade dispute between the US and China have once again cast a shadow on that hope".

The US and China both announced tit-for-tat tariff increases on each other's goods last Friday.

July's data showed that general manufacturing was the best-performing cluster, with output growing 6.9 per cent compared with a 0.8 per cent decline in June.

General manufacturing grew 2.9 per cent over January to July compared with the same period last year.

Output from biomedical manufacturing rose 0.8 per cent last month while the chemicals clusters advanced 2.2 per cent.

Biomedical manufacturing output grew 8.3 per cent in the first seven months of this year compared with the same period last year while chemicals production increased 0.2 per cent.

But precision engineering weighed down the overall sector's performance. Output fell 7.5 per cent compared with July last year, with the machinery and systems segment shrinking while the precision modules and components sector advanced on the back of higher output in optical products.

Transport engineering production was down 0.2 per cent, as declines in land and marine and offshore engineering outweighed the growth in aerospace.

Precision engineering declined 8.7 per cent in the first seven months of the year and transport engineering dipped 0.8 per cent, compared with the same period last year.

A version of this article appeared in the print edition of The Straits Times on August 27, 2019, with the headline 'S'pore factory output far better than expected in July, falling 0.4%'. Print Edition | Subscribe