Annual factory output sees sharpest fall since 2001

SINGAPORE — Manufacturing output fell last year in the first annual contraction since the global financial crisis in 2009 and at the steepest pace since 2001, highlighting the challenges facing Singapore’s manufacturers amid the economic restructuring. 

Some economists say the weakness raises the prospects of a downward revision in fourth-quarter and 2015 gross domestic product.

Factory output slumped 5.2 per cent last year from a year earlier, data from the Economic Development Board showed today (Jan 26), the first decline since the 4.2 per cent drop in 2009, when the economy was reeling from the effects of the global crisis. It was also the worst performance in 14 years, after production plummeted 11.6 per cent during the dotcom collapse in 2001.

DBS Bank senior economist Irvin Seah said: “External competition, continued increases in business costs and manpower shortages are eroding the longer term prospects of the sector. The risk is that the manufacturing sector could be slipping into a structural decline given the persistent fall in the GDP share of the sector.”

Dr Tan Khay Boon, Senior Lecturer at SIM Global Education, said: “If the situation persists, Singapore risks losing manufacturing as a viable pillar for growth and may increasingly become like Hong Kong, which has to rely on the service sector to generate growth.”

“The electronics cluster is still plagued by weak demand in semi-conductors, computer peripherals and infocomm and consumer electronics.  While the low fuel price may provide some respite and increase demand for land and aerospace output in the transport engineering cluster, it may spell trouble for the heavier-weighted marine & offshore engineering sectors,” he added
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Factory output shrank 7.9 per cent last month from a year earlier, the EDB showed, marking the 11th consecutive month of decline, as the electronics and marine and offshore engineering sectors continued to wane. The contraction, deepening from the 6.4 per cent decline in the previous month, was worse than the 7 per cent decline that economists had expected. Excluding biomedical manufacturing, output fell by 13 per cent. 

CIMB Private Banking economist Song Seng Wun said: “Due to the worse than-expected decline in the manufacturing sector, we expect GDP to come in slower at 1.8 per cent year-on-year for the fourth quarter and at 5.1 per cent on a quarter-on-quarter annualised seasonally adjusted basis, lower than the advanced estimates by the Ministry of Trade and Industry of 2 per cent year-on-year and 5.7 per cent quarter-on-quarter, respectively. For the whole of last year, the GDP forecast will be at 2 per cent, marginally lower than the 2.1 per cent estimate.” However, UOB economist Francis Tan said:

“Manufacturing takes up one-fifth of overall GDP and would not cause much changes. Only if there is a change in services – contributes to 67 per cent of total GDP – then will we see much changes,” he said.

Even as last year’s GDP may come in short, economists have maintained their forecasts for Singapore’s performance for this year, with banks such as UOB, DBS, ANZ and CIMB keeping to their GDP growth estimates ranging between 2 per cent and 2.7 per cent.

“Growth for this year will be marginally better on the expectation of growth from developed economies and stabilising from China’s growth slowdown,” Mr Song said.

Last month, five out of six manufacturing clusters shrank, highlighting the broad-based weakness in the sector. The key electronics cluster, which carries about one-third of the total weight in the industrial production index, contracted 12.4 per cent, following the 13.9 per cent decline the previous month.  Output of the transport engineering cluster declined 26.4 per cent, with the marine & offshore engineering segment plummeting 40.3 per cent due to the fewer rigs being built and weaker demand for oilfield & gas field equipment as oil prices plunged.

Amid the worsening slump in the factory sector, Singapore’s manufacturers need to venture abroad for growth opportunities, said Dr Ahmad Magad, vice president of the Singapore Manufacturing Federation (SMF), today.

“To sustain our economic growth against a backdrop of tight labour market, sluggish productivity growth, and rising business costs, our companies must look beyond our domestic market, and expand overseas to find new regional and global markets,” he said yesterday on the sidelines of a dialogue session with US Ambassador to Singapore, Mr Kirk Wagar, hosted by the SMF. More than 120 business leaders and representatives from the private and public sector attended the event.

“The entire ASEAN in itself represents a huge market. If we look beyond our shores to look out for opportunities available in our neighbouring countries - Malaysia, Indonesia, Vietnam, there are plenty of opportunities there that can be tapped,” he said.

“The US has indeed been Singapore’s traditional market… Opportunities still abound,” he added. The SMF yesterday announced it will lead a business mission to the US in June, its first since the 1990s.