Singapore’s manufacturing fails to bounce, mulling GDP revision

Singapore Industrial Production by Sector 2013-04-30Enlarge GraphAnalysts were expecting a bounce after a weak February due to one time factors

This data release was key as analysts were expecting strong figures as foreshadowed by strong export data. A positive posting may have lead to an upward revision of the GDP forecast.

Analysts were expecting a 3% drop in production, but the actual figures in industrial production data showed a 4.1% drop. While this is a significant improvement from the 16% drop the previous month, it fell below expectations and disappointed the market.

Analysts’ forecasts were driven by the improvements shown in exports earlier in the month. Non-oil exports were up 8%, which sent a signal to the market that a bounce was imminent. Additionally, the biomedical segment, which accounts for 18% part of the overall production, had a slow start of the year due to the holidays and unforeseen shutdowns.

Industry surprises lower aggregate result

Singapore exports most of what it produces, so exports and industrial production go hand in hand. The main export industries are electronics and biomedical, which tend to drive the macroeconomic data given their large shares.

  • The biomedical industry did jump up as expected, posting a 16% increase. Excluding the sector, the decrease would have been almost a 9% drop.
  • The electronics sector dropped as expected, posting a 7% decrease. While general semiconductors dropped a mere 3%, data storage plummeted 32%, though its share is much lower.

The wild cards on this data release were precision engineering and transport engineering, which dropped almost 15%, and together accounted for 28% of the industrial output.

Implications

The drop in production may be driven by perceived lower demand from other markets given the increased competition from Japanese producers. Japan’s intensive monetary easing has significantly depreciated the Japanese Yen, putting producers in Singapore at a significant price disadvantage.

While exports were up, there is usually a time lag between production and shipping, which means manufacturing data trumps any prior export data in terms of reading future demand. Additionally, exports and industrial production indices are not directly comparable since exports are denominated in Singapore Dollars and production is measured by volume.

Analysts were speculating that the improvement in exports and manufacturing would lead to an upward increase revision of GDP growth forecasts, though, given the data, it is unlikely that this will happen now.

In the short-term to medium-term, it is likely that Japan will continue to steal demand from Singapore. Furthermore, the disappointing data from China further reduces the overall prospects for the region.