Caught unawares: 2014 GDP growth reeling from sudden manufacturing slowdown

Even analysts were surprised at the drop.

The country’s GDP full-year GDP growth will suffer thanks to the manufacturing industry’s lackluster performance in May, a report by UOB Economic-Treasury Research revealed today.

Singapore’s Industrial Production contracted 2.5% yoy in May, a shocking drop considering that consensus expectations were for a 2.4% yoy gain.

“As such, we are also revising our full year IP forecast to 3.5%, from 5.0% previously. Feeding the latest manufacturing numbers into our GDP forecast shows that our 2Q GDP growth forecast of 4% y/y could potentially be downgraded to 3.1% y/y, which implies a downside risk to our full year GDP growth forecast of 4.2%,” noted UOB.

Here’s more from the report:

ƒFor the first time since Jun 2013, Singapore’s Industrial Production (IP) slipped into contraction and registered a 2.5% y/y decline (-5.7% m/m SA) in the month of May.

Consensus expectations was for a 2.4% y/y gain, while IP in April was revised higher to 5.3% y/y from 4.6% y/y. Ex-biomedical manufacturing, IP fell 0.5% y/y (+0.4% m/m SA).
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Electronics manufacturing continued a second month of contraction (-7.5% y/y) in May, and reversing the positive growth trend since May 2013, as semiconductor output fell 6.4% y/y, a second month of decline.

If we recall, this was probably due to the “firm-specific factor” mentioned in the EDB’s April report where it would have an impact on the y/y growth in the coming months due to a higher base of comparison.

That said, we do not think that the “firm-specific factor” was the result of any big semiconductor company leaving our shores, instead it could probably be one or more firms upgrading their plants.

In the short term, this may impact the overall output for the electronics industry, but such investments would probably mean better pricing and production volume of Singapore’s semiconductor products upcoming.