Singapore industrial production worse than we thought

IP contracts for a third straight month in October.

October industrial production contracted for a third straight month, by -2.1% y/y (September: -2.8%). Barclays Research notes that this was worse than consensus expectations (-0.7%).

Barclays says upside surprise though came from better-than-expected output in the non-pharma industries.

IP ex-pharma actually expanded 0.6% y/y (September: -1.9%). Output levels recovered by 2.3% m/m sa to stem four straight months of output losses (-2.6m/m on average each month). The improvement in output was seen in electronics (mostly semiconductors), chemicals and precision engineering. In contrast, the transport engineering sector saw some payback (-4% m/m sa) after a surge in September.

Here's more from Barclays:

We could get a stronger IP growth print in November, given a very low comparison base in the electronics and biomedical industries. Last November, the electronics industry was temporarily affected by a lack of parts owing to severe flooding in Thailand. We also expect biomedical production to expand further, now that companies appear to be switching to producing higher value-added active ingredients this quarter. Indeed, October output reversed three straight months of decline to rise 8.4% m/m.

Nonetheless, it may be too early to call a sustained recovery in IP. Leading indicators for Singapore’s manufacturing near-term performance are mixed. On one hand, non-oil retained imports of intermediate goods fell in October to their lowest level year-to-date and the electronics PMI slipped to 47.5 (from 50). On the other hand, US ISM new orders continue to improve and the semiconductor book-to-bill ratio has also stabilised. In our view, Singapore is something of a “swing producer” for high value-added electronics – plants tend to get activated when demand is sufficiently strong to make capacity in North Asia insufficient. Furthermore, unlike Korea and Taiwan, Singapore is not as plugged into the smartphone and tablet value chains that are seeing robust consumer demand. Overall, until we see signs of stronger consumption and investment data from the US and Europe, we think that manufacturing in Singapore could remain sluggish.
 

We recently lowered our GDP growth forecast for Q4 and Q1 next year to factor in a more modest recovery after the worse-than-expected contraction in Q3 (see Singapore: We lower our GDP forecasts by 50bp to 1.5% for 2012 and 2.5% for 2013, 16 November 2012). Even so, we are not forecasting a technical recession in Q4. And neither is the government – by our estimate, the government’s full year forecast of 1.5% growth requires the economy to expand 2-3% q/q saar in Q4 (Q3: -5.9%).

Details

October IP contracted for the third consecutive month by 2.1% y/y. However, it contracted less than in September (-2.8%) largely due to an improvement in electronics output (October: -6.1% y/y; September: -13.2%) and chemicals (October: +13.7; September: -0.4%). There were base effects at play, given that production in both industries were disrupted last October by flooding in Thailand and refinery shutdowns respectively. However, we also observed slightly stronger demand on a m/m sa basis in October. In contrast, biomedical IP declined 11.7% y/y, its worst performance year-to-date. While output rose on a m/m basis, it was not sufficient to offset the extraordinary high base when output surged to a near-record high last October. Even so, biomedical remains the best performer in manufacturing year-to-date, expanding 12.8% y/y YTD to shore up overall IP (0.7% y/y YTD).