Singapore: February 2019 industrial production

HIGHLIGHTS

February 2019 industrial production

• Industrial output rose by 0.7% yoy in February on gains in biomedical, and slower declines in electronics and precision engineering.
• Notably, January’s readings were revised from -3.1% yoy to -0.4% yoy due to a sizeable upward adjustment to electronics production.
• We expect MAS to maintain its current monetary settings at its April review.

Factory output rebounded in Feb despite CNY holiday season
Singapore’s industrial production index (IPI) grew 0.7% yoy in February as manufacturers wound down for the seasonal Lunar New Year break. January’s dip in factory activity was revised to -0.4% yoy, less severe than initially estimated (-3.1% yoy), primarily due to a sizable upward adjustment to electronics production. IPI excluding biomed reported a shallower decline (-1.6% yoy in Feb vs. -2.8% yoy in January). On a seasonally-adjusted basis, IPI dropped 4.1% mom in February (+3.1% mom in January).

Drag abates in the electronics sector
Electronics output contraction narrowed in February (-1.1% yoy vs. -4.0% yoy in Janruary), due to a marginal rebound in the semiconductor segment (+1.1% yoy vs. -2.6% yoy in January) and more modest declines in the infocomms & consumer electronics segments (-6.6% yoy vs. -20.5% yoy in January). We note that there was a notable revision in electronics in January (revised: -4.0% yoy, initial: -13.7% yoy) due to a less severe semiconductor output contraction (revised: -2.6% yoy, initial: -14.2% yoy).

Robust demand for drugs and MedTech products
Biomedical production strengthened 13.3% yoy in Feb (+10.3% yoy in January), supported by expansion in pharmaceutical output (+17.9% yoy vs. +13.7% yoy in January) and medical technology output (+3.3% yoy vs. +1.9% yoy in January).

Activity in other manufacturing segments remain subdued
A reversal in precision modules & components (+7.4% yoy vs. -5.8% yoy in January) due to increased production of optical products, could not lift the precision engineering segment out of its sustained contraction (-14.9% yoy in Feb vs. -16.8% yoy in January). Meanwhile, weaker marine & offshore activities (-7.7% yoy in Feb vs. +2.6% yoy in Jan) led to slower gains in transport engineering (+4.2% yoy vs. +10.4% yoy in January). There was also a major downward revision in January’s growth reading for marine & offshore engineering due to updated information about a firm-specific factor as mentioned in Feb’s press release (revised: +2.6% yoy, initial: +26.9% yoy). Chemicals output steadied the boat, growing 2.0% in Feb (+1.7% yoy in January), while festive demand lifted output of food, beverages and tobacco (+12.2% yoy vs. +6.4% yoy in January), particularly infant milk and beverage products.

External headwinds call for cautious approach
The combined January-February IPI readings registered a mild expansion of 0.1% yoy, while slippages in the forward-looking PMI indicate that a potential recovery in Singapore’s manufacturing sector may only emerge in the second half of the year. In addition, protracted negotiations between the US and China on ending their trade stand-off, now likely to push on into Apr, are not helping to soothe frayed sentiment among exporters. Having continually tightened its exchange-rate based monetary policy throughout 2018, we expect the Monetary Authority of Singapore (MAS) to take a pause and maintain the slope, width and mid-point of the S$NEER at its bi-annual review next month, to monitor heightened risks to the external outlook.

Originally published by CIMB Research and Economics on 27 March 2019.

This article has been edited to reflect its time-sensitivity.