Singapore factory output falls 0.9% in October, after surging for two months

Factory output fell 0.9 per cent year on year, after a revised 25.6 per cent jump in Sept and a 16.4 per cent rise in Aug 2020. - ST

SINGAPORE (The Straits Times/ANN): Singapore's manufacturing output dropped for the first time in three months in October, with only the biomedical and precision engineering clusters seeing growth.

Factory output fell 0.9 per cent year on year, after a revised 25.6 per cent jump in September and a 16.4 per cent rise in August, according to data released on Thursday (Nov 26) by the Economic Development Board (EDB).

Economists had expected a 6.2 per cent increase, according to the median in a Reuters poll.

However, most analysts said the unexpected turn in manufacturing growth was unlikely to change the trajectory of the economy recovery. They said a relatively slow period in the fourth quarter will give way to stronger output numbers next year backed by rising global demand.

On a seasonally adjusted month-on-month basis, October’s output shrank 19 per cent - after four consecutive months of sequential improvement, and was the worst since February when it dropped by 22 per cent.

On a seasonally adjusted month-on-month basis, October's output shrank 19 per cent - after four consecutive months of sequential improvement, and was the worst since February when it dropped by 22 per cent.

Transport engineering, led the output decline with a 31.8 per cent year-on-year plunge.

EDB said in a statement on Thursday that levels of activity in aerospace firms and shipyards remained low as new orders were adversely impacted by travel restrictions and a weak global oil and gas market.

Overall, output in the transport engineering cluster tanked by 24.9 per cent in the first 10 months of 2020 compared to the same period last year.

Electronics output declined 0.6 per cent year on year in October, after pandemic-driven demand drove double-digit gains in the previous two months.

While the electronic modules and components, and computer peripherals and data storage segments grew 16 per cent and 20.2 per cent respectively, the semiconductors and infocomms and consumer electronics segments shrank 2 per cent and 2.5 per cent respectively.

However, the electronics cluster's output is still up by 7.1 per cent year on year in the first 10 months of 2020.

General manufacturing contracted 12.8 per cent in October on a year-on-year basis, with all segments recording output declines.

The biomedical cluster grew 10.2 per cent year on year, cooling from the 91.2 per cent output surge it enjoyed in September. Without the biomed segment, overall manufacturing in October would have dropped by 2.7 per cent.

Precision engineering output also increased, by 10.6 per cent in October compared to the same period a year ago.

Within the cluster, the machinery and systems segment grew 16.8 per cent with higher output of industrial process and semiconductor equipment.

In contrast, the precision modules and components segment declined 3.5 per cent on account of lower production in dies, moulds, tools, jigs and fixtures. Overall, the precision engineering cluster grew 11 per cent from January to October, compared to the same period a year ago.

Selena Ling, OCBC Bank's chief economist and head of treasury research and strategy, said the manufacturing data confirmed her earlier expectation for a fourth-quarter growth wobble after a V-shaped third-quarter bounce.

The possible soft patch in the fourth quarter was also flagged by the non-oil domestic exports data for October that showed a 3.1 per cent decline, snapping four straight months of growth. Electronics shipments dipped 0.4 per cent, after rising 21.4 per cent the previous month, figures released last week showed.

"The key question is whether the current soft patch in electronics, particularly semiconductors, will persist in the coming months," said Ling. So far, there does not appear to be any suggestions of widespread semiconductor industry weakness worldwide, she said.

The recent first 20 days of exports in November for South Korea showed resilient double-digit growth, while October export orders for Taiwan also continued to increase.

The semiconductors and electronics machinery industry is tipped to see 9.7 per cent this year, with a pickup into 2021, according to Interact Analysis.

"This October soft patch certainly poses downside risk to Singapore's fourth-quarter manufacturing and GDP growth," said Ling.

That said, the 2021 official GDP growth forecast of 4-6 per cent assumes the overall recovery will sustain into next year, she noted.

Sin Beng Ong, analyst at JP Morgan, said the October manufacturing performance was more of a blip.

"Although manufacturing production did give up some of its recent gains in October, we view this as a pause rather than a change in trend," he said.

"Indeed, Singapore's October PMI (purchasing managers index) continue to signal expansion, consistent with the other regional surveys. Moreover, the November flash PMIs from the developed markets convey a similar resilience in manufacturing despite the rise in Covid-19 cases," he noted.

The PMI data earlier this month showed that the manufacturing index inched up to 50.5 in October from 50.3 in September, moving slightly further above the 50-point threshold that separates expansion from contraction. - The Straits Times/Asia News Network

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