Extremely poor manufacturing data spell big trouble for Q2 GDP print

Don’t rule out a technical recession just yet.

The struggling manufacturing sector was never expected to turn in good numbers in the second quarter. However, the worse-than-expected industrial production contraction in Q2 still managed to take analysts by surprise.

“It’s an utterly poor outcome and way lower than the projection of about -1.8% YoY assumed in the recent advance GDP estimates for 2Q15. Industrial production figures for June had just delivered another blow to the economy,” DBS said in a report.

DBS said that while the decline has been more severe than expected, the same old culprits are behind contraction. In particular, weak pharmaceuticals output and electronics production drove the decline in the second quarter.

DBS warned that the poor numbers will surely drag Singapore’s second-quarter GDP growth figure.

“Overall manufacturing growth in the second quarter now reads -4.9% against the advance estimate of -4.0%. And this will essentially drag overall GDP growth down by about 0.2-0.25%-pt from the official projection of 1.7% YoY,” said DBS.

“Ultimately, external demand has been weak amidst the dicey global economic conditions. Absent a recovery in the global economy, manufacturing performance will continue to languish and weigh down on overall GDP growth outlook. Indeed, downside risks are certainly piling up. Against the backdrop of a second quarter GDP contraction, risk of a technical recession, albeit still low, should not be dismissed entirely,” DBS warned.