SINGAPORE - Singapore’s manufacturing sector suffered a surprise contraction in January with production falling 2.7 per cent year on year, according to data released by the Economic Development Board on Friday.
Analysts polled by Bloomberg had forecast a return to growth of 0.8 per cent, after three straight months of contraction.
Excluding biomedical manufacturing, January output fell 6.3 per cent.
Maybank economists Chua Hak Bin and Lee Ju Ye believe the decline was partly contributed by Chinese New Year falling in January this year, compared with early February in 2022.
The drop, however, was less than expected as pharmaceuticals production jumped to the highest level in 13 months.
“January and February numbers combined would provide a more meaningful assessment of global demand and the impact from China’s reopening,” they said.
The key electronics sector reversed December’s 4.2 per cent growth, shrinking 2.9 per cent in January. Electronics accounts for 40 per cent of Singapore’s export-driven manufacturing sector and thus is key to economic growth.
For electronics, while the computer peripherals and data storage segment grew 2.5 per cent, softening demand hit the other segments. Output for infocomms and consumer electronics plunged 27.5 per cent, while the other electronic modules and components segment tumbled 25 per cent on the back of softening demand.
Semiconductor production continued to shrink with a 1.5 per cent drop in January.
Biomedical manufacturing saw the most growth among all the sectors, with output growing by 23.2 per cent on a year-on-year basis.
Output of the pharmaceuticals segment increased by 37.5 per cent, on account of a different mix of active pharmaceutical ingredients being produced compared with a year ago. The medical technology segment grew 3.8 per cent with higher export demand from the United States and Europe, the report showed.
Another sector that saw growth was transport engineering, with output increasing 4.7 per cent year on year in January.
The marine and offshore engineering segment expanded 29.2 per cent, supported by a higher level of activities in the shipyard as well as increased production of oil and gas field equipment. But the aerospace and land segments contracted 2.8 per cent and 20.8 per cent respectively, with the latter recording lower export demand for vehicle parts and accessories.
General manufacturing saw the steepest decline, with output falling 18.3 per cent in January year on year, due in part to the Chinese New Year holidays.
Precision engineering saw output decline 11.1 per cent, while chemicals decreased 13 per cent.
The Maybank economists expect the manufacturing recession to persist in the first half of 2023, but said the downturn may be shallow as China’s reopening will cushion and partly offset the slowdown in the US and Europe. China’s official manufacturing purchasing managers’ index swung back to growth for the first time in four months in January.
The economists also maintained their forecast for Singapore’s economy to grow at 1.7 per cent in 2023.
“Growth will be uneven with manufacturing and trade-related services in recession, while the hospitality, aviation and consumer-facing sectors will continue to recover and support growth,” they said.
OCBC Bank’s chief economist Selena Ling said Singapore must prepare for a bumpy road in the first half of 2023. She expects manufacturing to contract 4.8 per cent in the first quarter of the year, before stabilising in the second half of 2023 to bring full-year manufacturing growth to minus 1.6 per cent.
Ms Ling said: “In turn, Singapore’s first-quarter growth is likely to be very muted at minus 0.6 per cent year on year before recovering in subsequent quarters to bring full-year 2023 growth to around 1.8 per cent.”
As for the semiconductor industry, which saw chip prices slumping in the second half of 2022 and big players like Micron Technology and SK Hynix planning to cut output and capital spending, not all is doom and gloom.
Ms Ling said chipmaker Nvidia saw its recent sales forecast topping market estimates amid an artificial intelligence computing push that helped to offset sluggish PC chip demand, while Samsung is betting on long-term memory chip demand.
She added: “Outside of electronics, the transport engineering industry, particularly the aerospace segment, should continue to benefit from China’s reopening, which should drive international travel. In the near term, the biomedical cluster should also act as a buffer.”