Business sentiments in the manufacturing sector have remained negative for the next six months from October to March as companies continue to face supply chain challenges and operational cost pressures amid the Russia-Ukraine conflict and Covid-19-zero measures in China.
In a report by EDB Singapore, a weighted 8% of manufacturers expect business conditions to improve during the period while a weighted 28% foresee a weaker business outlook.
Overall, a net weighted balance of 20% of manufacturing firms anticipate a less favourable business situation from October to March 2023 compared to the 3Q2022.
Within the manufacturing sector, the transport engineering sector is the most optimistic, with a net weighted 36% of firms expecting an improved operating environment for the period. This is led by the aerospace segment, which expects to see higher demand for aircraft maintenance, repair and overhaul (MRO) work due to the increased air travel. Within the cluster, firms in the land transport segment also anticipate improved business conditions in the next six months due to a better supply of automotive components from vendors.
The rest of the clusters – from the general manufacturing cluster, the chemicals cluster, the biomedical manufacturing cluster, the precision engineering cluster and the electronics cluster – expect a weaker business environment for the period from October to March 2023 compared to the 3Q2022. This is mainly due to the rising operating costs, supply chain constraints, weakness in the semiconductor industry and softening consumer demand for semiconductors and computers, EDB Singapore notes.
Looking ahead, for the period from October to December, a net weighted balance of 17% of manufacturers expect lower output in the 4Q2022, compared to the 3Q2022.
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In the next three months, the transport engineering and general manufacturing clusters have projected higher output levels while the rest of the manufacturing clusters anticipate a decline in production.
The transport engineering cluster is bolstered by the anticipated higher production of automotive products in the land transport segment, as well as the higher level of activity with more aircraft engine repair work in the aerospace segment.
At the same time, the general manufacturing cluster expects a higher level of production in the 4Q2022 as the food, beverages & tobacco segment foresees higher output in anticipation of festive demand ahead. Similarly, the miscellaneous industry segment expects higher production of construction related materials on the back of sustained domestic construction activities.
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Net weighted balance of 6% of manufacturers expected to see
A weighted 82% of firms in the manufacturing sector expect levels to remain similar q-o-q in the 4Q2022, although a net weighted balance of 6% of manufacturers expect to see an increase in hiring activities q-o-q. In particular, the transport engineering, general manufacturing industries, precision engineering and chemicals clusters expect to hire more workers.
No limiting factors will affect ability to obtain export orders, say firms
Meanwhile, a weighted 74% of firms in the manufacturing sector reported that no limiting factors would affect their ability to obtain export orders in the 4Q2022. Among the firms that anticipate challenges in obtaining export orders, the top two limiting factors cited are price competition from overseas competitors and higher operating costs from supply chain disruptions.
Setback in domestic business sentiments ‘unsurprising’: OCBC
The setback in domestic business sentiments is “unsurprising”, especially for the manufacturing and electronics industries, says Selena Ling, chief economist and head of treasury, research and strategy at OCBC Bank.
This is given the “rapidly souring” global growth prospects, perceived recession risks for many major markets such as the Eurozone and the UK, as well as the unprecedented challenges in the US and China.
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That said, Ling has kept her full-year GDP growth forecast for 2022 at 3% to 7%, which “should still be attainable”.
Despite the faltering in Singapore’s GDP growth in the 4Q2022, the services industry, which are still coming from a relatively lower base, is the silver lining, Ling points out.
The relaxation of Covid-related measures and re-opening of many regional economies bode well for the tourism and MICE activity pipeline in the near-term, she adds.
MICE refers to events such as meetings, incentives, conferences and exhibitions.
While Ling has kept her GDP estimate for 2022 unchanged, the country’s growth prospects for 2022 is “already clearly articulated to be likely be ‘below trend’, which likely mean a sub-3% range”.
“[This is] on the assumption that the US economy does not enter into a full-fledged recession and that global policymakers begin to pivot to taper down their aggressive frontloading of rate hikes in the coming weeks and months as inflation starts to peaks and stabilises,” she says.
“This latest business expectations survey clearly illustrates that the Singapore economy will not be immune to the current global economic and geopolitical headwinds, but as the services sectors take over the mantle from manufacturing to do more of the heavy lifting from here, there may be greater dependence on the ongoing health of the local job market and in turn domestic and regional consumer demand,” she adds
