Analysts remain positive on Singapore’s manufacturing sector after the country’s industrial production (IP) grew by 0.1% m-o-m on a seasonally adjusted basis in October, rebounding from a revised -1.5% m-o-m sa fall in September.
The “pullback” in October IP was partly driven by a sharp deceleration in pharmaceuticals while medical technology output remained stable at 1.6% y-o-y in October, UOB Economist Jester Koh notes.
Excluding the biomedical cluster, IP softened to 0.4% y-o-y in October.
Consequently, IP slowed to 1.2% y-o-y in October as base effects were less favourable compared to 3Q2024.
This is lower than RHB analysts Barnabas Gan and Laalitha Raveenthar’s and Bloomberg’s consensus estimate of 2.6% y-o-y.
Despite this, RHB’s Gan and Raveenthar maintain Singapore’s full-year industrial production (IP) growth and GDP projection in 2024 at 3.5% and 3.4% respectively.
Maybank analysts Chua Hak Bin and Brian Lee Shun Rong have also maintained their GDP growth forecast at 3.6% in 2024 and 2.6% in 2025.
“Despite the relatively positive full-year print, IP momentum is expected to slow in 4Q2024 from a seasonal perspective,” Gan and Raveenthar add.
RHB’s Gan and Raveenthar note that the slowdown in October’s non-oil domestic exports (NODX) may have been a “tell-tale” sign of softer IP growth.
See also: Headline inflation eases to 1.4% on y-o-y basis in October; core inflation declines to 2.1%
On a positive note, electronics output strengthened to 4.3% y-o-y in October.
This was led by improvements in semiconductors, which saw a 2.1% y-o-y increase, and info-communications and consumer electronics, which saw a 20.3% y-o-y growth.
Computer peripherals and data storage expanded 22.9% y-o-y, a continuation of double-digit growth in the preceding month.
Maybank’s Chua and Lee note that the Economic and Development Board (EDB) reported that all electronics segments were seeing improved order, suggesting that global electronics demand continues to pick up and broaden
Transport engineering was another bright spot, which saw a 10.9% y-o-y increase, particularly within aerospace, which experienced a 16.5% y-o-y growth, driven by higher production for aircraft parts and more maintenance, repair and overhaul jobs from commercial airlines.
Nonetheless, October IP was weighed by a decline in precision engineering, which experienced a 15.9% y-o-y decline, as the machinery and systems segment contracted by 21.3% y-o-y in October.
According to Maybank’s Chua and Lee, “the slump in precision engineering could reflect a pause in frontloading by China, corroborating a large contraction in Singapore’s domestic exports of specialised machinery and integrated circuits (ICs) to the country in October.”
For more stories about where money flows, click here for Capital Section
Chemical output fell 2.2% y-o-y due to a 31.7% y-o-y decline in specialties and 0.3% fall in petroleum. The specialties segment was weighed down by lower production of mineral oil additives and biofuels.
Maybank’s Chua and Lee note that general manufacturing saw a 0.6% y-o-y decline, weighed down by miscellaneous industries, due to a decline in the output of structural metal products and paperboard containers and boxes.
On a six-month moving average (6MMA) y-o-y basis, UOB’s Koh notes that electronics and overall output continued to record improvements in October, growing 10.5% and 5.6% respectively.
For the rest of 2024 and into early 2025, UOB’s Koh notes that growth momentum in trade-related sectors should be sustained and supported by the ongoing upturn in the electronic cycle with tailwinds from some front loading of exports and ramp-up in production ahead of President-elect Donald Trump’s proposed tariffs.
Similarly, RHB’s Gan and Raveenthar maintain a positive outlook in 2024, attributed to improved global and domestic economic landscape and the global technology upcycle.
Additionally, the World Semiconductor Trade Statistics (WSTS) organisation has projected a 16% y-o-y increase in the global semiconductor market, driven by healthy growth in the Americas and Asia Pacific market.
“Singapore's economy remains inherently tied to global trade demand, whereby our Goldilocks expectations into next year will help support the city state's externally led activities such as exports and manufacturing,” RHB’s Gan and Raveenthar say.
Trump has announced a 25% tariff on imports from Canada and Mexico and additional tariffs on imports from China.
To this end, UOB’s Koh notes that the outlook for 2025 “remains cloudy” and downside risks could emanate from further protectionist measures, elevated geopolitical tensions, possible peak in the electronics cycle and uncertainty over the pace of monetary easing by central banks.
With core inflation near the Monetary Authority of Singapore’s (MAS) guidance of 2% by year-end, Maybank’s Chua and Lee expect MAS to ease monetary policy via a slight reduction of the Singapore dollar nominal effective exchange rate (S$NEER) slope in January 2025, when core inflation is expected to slide below 2%.
