Singapore manufacturing down but not out: OSK-DMG

Economic doomsayers have been given fodder due to the weak January numbers but bright spots remain.

Manufacturing output slipped 8.8% yoy, far lower than analyst and market expectations, but OSK-DMG suggests that the rest of the year will be better all around.

OSK expects manufacturing output to expand in 2012, albeit slower than 2011, on the back of solid biomedical production, recovering electronics following the Japan and Thailand disruptions, and the improving electronic PMI.

Here's more from OSK-DMG:

IPI declined by 8.8% yoy in Jan as compared to Dec’s revised 25.1% gains, partly attributable to the shorter number of working days because of the Chinese New Year holidays, which fell in Jan this year. We and the market were expecting IPI to fall by just 1.4% and 1.6% respectively in the month. It may seem that we were way off the mark on our forecast for Jan but this was because IPI was rebased from 2007 to 2011. IPI ex biomedical production fell by a steeper 15.3% yoy in Jan, compared to 4.3% decline in Dec, while on a seasonally-adjusted mom basis, IPI rose by 3.3% from a revised 8.9% in Dec.

Production was broadly weaker across the various clusters. Electronics remained in the doldrums (Jan: -28.4%; Dec: -16.5%) with most segments still in contraction. The exception was computer peripherals, which rebounded 1.8% yoy in Jan from -8.8% in Dec. Chemicals, precision engineering and general manufacturing industries were all lower by 12.4%, 13.3% and 7.9% yoy respectively in Jan. The only bright spots were the biomedical and transport engineering clusters where output increased by 27.9% and 13.4% yoy respectively in Jan. Pharmaceuticals continued to drive biomedical growth, rising 32.5% yoy in Jan vs. 179.7% in Dec. The strong performance by transport engineering was once again on the back of the marine & offshore segment (+27% yoy), which saw more completed marine vessels and oil rigs.

While the steeper than expected drop in production is an inauspicious start to the new year, we think that it is too early to sound the death knell. This is because we expect pharmaceuticals (despite the problems in the Eurozone) to continue to provide support to manufacturing, albeit at a more moderate pace. We could also see better electronics performance (though likely to be still be patchy and gradual) ahead as firms re-build their inventories following the de-stocking that occurred with the supply-chain disruption in Japan and Thailand last year. Moreover, the leading indicators for electronics continues to paint an improved picture of demand with the SEMI book-to-bill ratio, the US new orders for electronics and US ISM new orders all showing improvement. Even Singapore’s electronic PMI has rebounded to 50.5 in Jan from 49.7 in Dec. Hence, we can expect manufacturing output to continue to expand in 2012, even if it is at a more moderate pace than in 2011.