Guess which manufacturing segment surprised analyst with a 28.9% drop

But decline may be a one-off.

According to UOB, Singapore’s June industrial production (IP) contracted 5.9% y/y (-3.1% m/m SA), lower than consensus estimates of a smaller 3.5% contraction.

Other than the high base seen in June last year, this month’s IP decline was attributed to the unexpected 28.9% y/y drop in the pharmaceuticals segment, even though the much smaller medical technology segment posted a 12.3% growth.

Here's more:

Being a highly-volatile segment, the decline this month may just be once-off. Notwithstanding the month-to month volatility, we are confident that the biomedical segment will remain a key pillar to Singapore’s manufacturing sector in the longer term.

The contraction reversed the past 2 consecutive months of growth that was contributed by a very strong biomedical segment and a cyclically-recovering electronics sector (note: IP growth in Apr and May averaged 3.6% y/y). Excluding the biomedical manufacturing cluster, IP declined 0.5%y/y (-0.5% m/m SA).

We are also encouraged by the 3rd consecutive month of growth seen in the electronics manufacturing segment (+2.6% y/y), which reversed the 24 months of consecutive contraction seen earlier.

The optimism in this segment reinforces our expectations of a cyclical recovery and with the improving trend in the U.S. Semiconductor Book-to-Bill ratio since reaching a recent low in October 2012.

As of June, the ratio registered 1.10, above parity for the 6th consecutive month, signaling improving demand.

In the first half of 2013, the electronics manufacturing segment contracted 4.1%. This is an improvement over the 9.4% y/y decline seen in the second half of last year.

More encouraging is the 1.3% y/y growth seen in the semiconductor manufacturing segment, compared to the 12.7% contraction in the second half of 2012.

We expect the higher growth numbers in the electronics manufacturing segment to continue and will mainly be supported by both a cyclical rebound in the external demand for IT-related products and the generally lower base seen in the second half of 2012.