Here's the main culprit behind disappointing manufacturing output in January

IP growth slowed to 3.9%.

According to UOB Economic-Treasury Research, Singapore’s Industrial Production (IP) expanded at a slower 3.9% y/y in January from a revised 6.4% in December.

While this continues the positive growth trend since July 2013, the latest y/y growth was a tad disappointing, coming in well below the Bloomberg consensus estimate for a 6.5% increase and our forecast of 7.5%. Ex-biomedical manufacturing, IP grew by a slightly weaker 3.7% y/y.

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The picture gets worse when we look at the seasonally adjusted IP which contracted by 8.1%m/m, the first decline since August 2013, and the sharpest decline since the 8% contraction in January 2013.

That said, the seasonal adjustment process may not have adequately accounted for the CNY effect (which typically falls on either January or February).

The robust expansion of the electronics cluster in 4Q 2013 which provided strong support for overall manufacturing activity late last year lost steam in January. Electronics cluster grew by just 7.4%y/y down from 22.3% in December, and this was largely due to semi-conductor output expanding by a measly 3.5%, down from 25.9% in December and 18% in November.

Within this cluster, the computer peripherals and other electronic modules and components grew robustly by 26.8% y/y and 40.5% y/y respectively but these 2 segments made up just a quarter of the size of semiconductors.

Additionally, transport engineering output grew by just 2.7%y/y (easing from 14% y/y in December) while precision engineering (-1.0%y/y) and general manufacturing (-4.2%) contracted. One of the bright spots was the chemicals (8.4% y/y) cluster, contributed by a near 29%y/y surge in petrochemicals.

The other bright spot was biomedical cluster which reversed 2 straight months of decline and grew by 5.1%y/y in January due largely to a 4.5% increase in pharmaceuticals.