The current downtrend is the longest on record.
Singapore’s industrial production beat bearish expectations with a mild 0.5% contraction in January, but analysts warn that the struggling manufacturing sector is far from being out of the woods yet.
UOB senior economist Alvin Liew is noted that with 12 consecutive months of year-on-year contraction, the the current downtrend in Singapore’s IP is the longest period of contraction on record, even longer than the recession periods since the 1980s.
As if this weren’t alarming enough, Liew added that in terms of the annual IP performance, the 5.2% contraction in 2015 was also the steepest since the 11.6% plunge in 2001.
“It remains to be seen whether we will get back-to-back contraction in 2016 (IP contracted 4.2% for two consecutive years in 2008 and 2009). We do not think so and we are maintaining our 2016 industrial production growth forecast of +2.5% due to an improving US economy fueling Singapore manufacturing demand and the low base effect of 2015 will ‘provide some support for growth’,” said Liew.
“The improvement in the January IP is certainly encouraging even though we acknowledged it is too early to tell if Singapore’s manufacturing sector is out of the doldrums yet,” Liew added.
Meanwhile, OCBC economist Barnabas Gan noted that the surprisingly strong performance in January was driven by a surge in biomedical production, particularly in the pharmaceuticals medical technology segment. However, biomedical production has been historically volatile and it remains to be seen whether it will prop up overall factory output for the entire year.
“We still anticipate the manufacturing sector to remain in the doldrums this year, but the January was a commendable start. The question is whether it will sustain for the rest of 1Q16,” Gan wrote in a report.
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