Economists predict ongoing decline in manufacturing output amid global challenges, with some signs of recovery in H2 2023
SINGAPORE: Manufacturing activity in Singapore is expected to continue contracting in the first half of 2023, with external market conditions remaining weak, economists stated following the release of January’s factory output data on Friday (Feb 24).
According to UOB senior economist Alvin Liew, this marks “the worst streak since 2015”, as industrial production dropped by 2.7% year-on-year in January, extending a decline that began in December 2022, when output fell by 2.6%. This represents the worst start to the year since 2012, as pointed out by OCBC chief economist Selena Ling, and was also below the 0.8% growth forecast by economists in a Bloomberg poll.
Economists from Maybank, Chua Hak Bin and Lee Ju Ye, noted that the earlier timing of the Chinese New Year this year could make the combined January and February data more indicative of trends moving forward. Excluding the volatile biomedical manufacturing sector, factory output fell by 6.3%, a stark reversal from December’s 0.3% growth.
RHB senior economist Barnabas Gan highlighted that Singapore’s non-oil domestic exports saw their steepest decline since January 2009, during the Global Financial Crisis, underscoring the slowdown in manufacturing as a result of weaker global demand. Singapore’s reliance on exports has caused a concurrent decline in manufacturing activities.
Electronics manufacturing experienced a 2.9% drop compared to the previous year, reversing the 4.2% growth seen in December. Ling attributed this downturn to falling prices in the global memory chip market in the latter half of 2022, which led some tech companies to scale back supply plans. However, she noted that demand for memory chips could rise due to the growth of generative artificial intelligence technologies.
Despite these challenges, some economists believe that China’s reopening may offer a boost to production. Maybank economists pointed to a positive growth in China’s manufacturing Purchasing Manager’s Index in January, the first increase since September 2022. This could help Singapore decouple from potential risks related to a US recession in 2023.
However, Gan remained cautious, predicting that China’s economic growth will likely slow further in the first quarter. This, combined with global demand risks, poses a significant challenge to Singapore’s economy. He emphasised that Singapore’s outward-oriented sectors, including electronics and chemicals, will face considerable headwinds, particularly as China is a major importer of semiconductor chips and petrochemicals.
Along with electronics, other sectors that recorded declines include:
Chemicals: -13%
Precision engineering: -11.1%
General manufacturing: -18.3%
Notably, production in biomedical manufacturing grew by 23.2%, while transport engineering expanded by 4.7%. However, Liew noted that the aerospace sub-sector, which drove transport engineering growth in 2022, contracted in January, marking its first decline since March 2021.
On a monthly basis, manufacturing output fell by 1.1% in January, reversing the revised 2.9% growth seen in December. Excluding biomedical manufacturing, production increased slightly by 0.4%, which was a smaller increase compared to December’s 4.8%.
