Chart of the Day: This chart rubs the ugly truth about Singapore's failing manufacturing sector

The weak NODX-strong IP mix isn't helping.

Singapore's manufacturing sector has been making the headlines recently for all the wrong reasons. Now, it is revealed that the failing sector is losing competitiveness, and there might be no way for it but further down.

According to a research by RBS, Singapore’s non-oil domestic exports (NODX) fell 4.6% yoy in June, following a 6.6% yoy decline in May. Despite this, the June industrial production (IP) is expected to rise.

Here's more from RBS:

The production component of the June PMI strengthened, along with the finished goods component, which rose to 51 in June from 49.5 in May. We forecast IP to rise 4% yoy in June.

Taking this into account, we expect the Q2 growth figure to be revised up; preliminary growth figures rely largely on the first two months of data for the quarter. Singapore’s preliminary GDP for Q2, released on July 14, came in below expectations (ours and Bloomberg consensus) at 2.1% yoy.

As the slowdown in manufacturing sector growth – 0.2% yoy in Q2 compared to 4.7% yoy in Q1 – was the primary cause for the shortfall, we expect an upward revision.

We are maintaining our call of 3.1% yoy growth for Q2. Our RBS GDP tracker for Singapore, which relies on high-frequency leading indicators, suggests the same. We also retain our full-year growth forecast of 4% at this time.

The dichotomy of weak NODX and strong IP has persisted for some time now. Over the past four quarters, NODX has witnessed a fall of 2.3% yoy, following a drop of 5.8% yoy in the preceding four quarters. IP, on the other hand, has been up 2.1% yoy since July 2012.

In short, Singapore’s manufacturing sector is losing competitiveness. Much of Singapore’s exports, especially in electronics, are still in the older technology products where prices have been falling rapidly.

The top five electronic products alone contributed 2.3% yoy or nearly the entire decline in NODX over the past four quarters, despite higher electronics production. Without investment in newer technology product lines, decline in NODX is likely to be sustained. New investment though remains unlikely, in our view, and if anything, we expect existing manufacturing to exit as well.