S’pore’s factory output in June better than expected, fuelling optimism that recession has been averted

Singapore’s factory output fell 4.9 per cent in June, its ninth consecutive month of decline, but the better-than-expected figures fuelled optimism that the worst of the contraction in the electronics sector may be over. 

Economists polled by Reuters had expected a 6.8 per cent year-on-year contraction in June, while those polled by Bloomberg had projected a 6 per cent shrinkage.

On Wednesday, data released by the Singapore Economic Development Board showed a fall across all industry clusters, except transport engineering. Excluding biomedical manufacturing, total output fell 5.2 per cent.

Dr Chua Hak Bin, economist at Maybank, told ST: “The worst of the contraction in electronic manufacturing may be behind us. There seems to be tentative signs of a recovery in global chip demand, led by high-end artificial intelligence chips. This growth downturn appears to be shallow and a recession has been miraculously averted despite the steep manufacturing fall since the start of the year.”

He added that a modest export boost from China’s reopening and possible stabilisation in demand for global electronics could provide some support in the second half of 2023, driving a modest manufacturing recovery.

Ms Selina Ling, OCBC’s chief economist, noted that the electronics cluster saw its output fall by a milder 2.9 per cent in June, marking the smallest decline since December 2022.

In particular, semiconductor output rebounded 3.1 per cent year-on-year in June, the first expansion since October 2022. The other electronic modules and components segment also expanded output at 7.5 per cent. However, the infocomms and consumer electronics as well as computer peripherals and data storage segment remained lacklustre on tepid demand.

Ms Ling said: “For the second half of this year, manufacturing output may contract by a smaller 1.9 per cent year-on-year to bring full-year 2023 growth to around minus 4.4 per cent year-on-year.” 

The transport engineering cluster was the outperformer. Its output increased 10.8 per cent year-on-year in June, underpinned by the aerospace segment which grew 16.7 per cent over the same period. There was higher demand for aircraft parts, as well as more maintenance, repair and overhaul jobs from commercial airlines on the back of increased global air traffic.

The biomedical manufacturing cluster saw its output fall 1.8 per cent in June. The 9.4 per cent increase in the output of the pharmaceuticals segment was insufficient to offset the 11.9 per cent contraction in the medical technology segment which was hit by lower demand from the United States and Europe. 

General manufacturing output fell 7.5 per cent on year in June, weighed down by lower production of batteries, structural metal products and apparel. 

The precision engineering cluster saw output drop 11.5 per cent year-on-year in June. The machinery and systems segment declined 6.9 per cent with lower output of back-end semiconductor equipment as well as refrigeration and air-conditioning compressors. 

The precision modules and components segment contracted 24.7 per cent due to lower production of optical products, plastic and metal precision components, and dies, moulds, tools, jigs and fixtures. 

Chemicals output decreased 8.6 per cent in June 2023, compared to a year earlier. Petroleum and specialties segments contracted 5.5 per cent and 6.0 per cent, respectively.

The petrochemicals segment fell 14.8 per cent on the back of plant maintenance shutdowns as well as weak market demand.