SG economy contracts 6.5% in 2Q 2011

The 7.4% growth in the manufacturing sector last month offers little assurance against the possibility of another technical recession.

In a statement, DBS Bank said the local market fears the risk of another quarter of contraction given the poorer than expected July non-oil domestic export (NODX) figure announced last week.

The NODX dipped 2.8% YOY last month on the back of the unimpressive activity in the electronics NODX that offset the gains in the non-electronic sector.

The bank noted that although the July NODX figure was “way too distorted” to give a clear picture of the economy’s health, the industrial production figure announced by the IE has offered “little assurance” to investors and market-watchers alike.

Mixed feelings accompany the manufacturing sector’s growth last month, for while headline output growth in YoY terms is considered fairly healthy, overall manufacturing activity at 0.3% MoM sa has been flat compared to the previous month.

Though the pharmaceutical segment has lived up to expectations and delivered a solid 47.7% expansion, the key electronics segment has continued to languish with a contraction of 18.2%,” DBS said.

The bank added that if not for the ramp-up in pharmaceutical output, overall industrial production would have fallen by 6.9%.

With its present pace of production, the bank is optimistic that the pharmaceutical segment will continue turning in impressive figures in the coming months.

Economists have already penciled in a “strong expansion” of about 90-100% for the sector in August.

According to DBS, although the current data point to signs that Singapore can possibly fall into a technical recession, the economy will be able to “marginally avert” the trap and will just be instead a close call.

It maintained, however, that weaker demand from the US and Eurozone will remain a drag on the Singapore economy.

“The August industrial production index will be the tie-breaker and hope is now on the pharmaceutical segment to rise to the occasion. Moreover, reconstruction efforts in Japan and a resilient Asia demand may provide some much needed impetus to output growth,” the bank said.