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Singapore's factory output falls 0.2% in September

Singapore's factory output falls 0.2% in September

Singapore's manufacturing output fell 0.2% in September, its first decline for almost a year and considerably short of the 3.5% rise that analysts had been expecting.

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By Jay Banerjee 29.10.2018

Singapore's manufacturing output fell 0.2% in September, its first decline for almost a year and considerably short of the 3.5% rise that analysts had been expecting. The Monetary Authority of Singapore (MAS) also warned that economic growth is likely to slow in the short to medium term.

The latest reading is a surprise, as manufacturing was healthy in August, climbing 3.7% year-over-year. The sector had been on the up since December of last year and has been a key driver in Singapore’s growth in 2018. The decline will be a concern, as the MAS noted that "negative spillovers" from the US-China trade spat could impact the economy during the fourth quarter.

The Republic's manufacturing output should cool in the coming months, but economists said that the drop-off has been greater than expected. Most clusters went into the red last month, including biomedical, which slumped 9.7% year-over-year. Medical technology and pharmaceuticals also contracted 5.8% and 11.1%, respectively.

Maybank Kim Eng Economist Chua Hak Bin said that the technology cycle has passed its peak and is now losing steam. This contributed to the slowdown in electronics production as the output of computer peripherals, semiconductors, data storages and other components all fell.  

Electronics enjoyed a boom period last year and drove growth, but it now appears to be "pulling back," according to Chua. While Singapore’s manufacturing has largely escaped from downside risks stemming from the US-China trade war, its supply chains have experienced disruption during the last month.

UOB Senior Economist Alvin Liew expects trade tensions to have more of an impact during the final two months of the year and into 2019. "While there is a possibility that some production will be relocated to Southeast Asia, offsetting the negative impact to trade, factories don't pop up overnight," he noted. "That time lag between relocating production and reaping the relocation benefits will still mean downside growth risk to Singapore's manufacturing, at least in the early part of 2019."

While MAS expects economic growth to slow, new drivers will come to the fore. It said that the modern services cluster will contribute more as businesses continues to embrace digital transformation and innovation. While manufacturing was down last month, marine and offshore helped boost transport engineering as it soared 39.4% year-over-year.

MAS also touched on the fallout of the trade standoff in its latest review. It said that Singapore has largely been able to steer clear of any significant downsides, but this is set to change and likely crimp growth for the remainder of the year. The central bank said that full-year growth is still on course to finish in the upper band of the 2.5% to 3.5% forecast but will moderate in 2019.

"Although there has been some detente between the US and several of its trade partners, trade tensions remain at the forefront of consideration for global growth prospects," MAS said in its macroeconomic review on Saturday. Economists believe that this makes for a cloudy outlook, as uncertainties and risks have increased since the previous report six months ago.

Trade conflict will apply pressure in certain areas but could also lead to opportunities elsewhere, according to MAS. Positive spillover will come in the form of international enterprises looking to regional trade partners as they optimize their supply chains to minimize the impact of the tit-for-tat trade battle.

A recent AmCham China and AmCham Shanghai report found that a third of American companies have broached the idea of moving production from China and are looking to emerging Asia as a destination. Singapore’s status as a business and tech hub means that it will be the first in line to benefit from the upsides of trade tensions.

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