Third straight quarter of manufacturing contraction on the cards after dismal IP print

Weakness in top exporting destinations isn't helping.

If May’s 2.3% industrial production (IP) decline is anything to go by, then the domestic manufacturing sector appears headed for its third consecutive quarter of contraction.

“With IP data out for two out of three months for the second quarter of 2015, the risk is high that we may see a third consecutive quarter of on-year contraction in Singapore’s manufacturing sector,” said UOB economists Francis Tan and Jimmy Koh.

The manufacturing sector posted a 1.3% year-on-year decline in the fourth quarter of 2014, which was followed by a 2.7% year-on-year contraction in the first quarter of 2015.

“At 19% share of Singapore’s GDP, slower growth prospects in manufacturing will weigh on full year GDP growth outlook. Economic uncertainties plaguing [our top exporting destinations] the Eurozone, US and China remains and will continue to drag on the confidence of manufacturers and exporters. In addition, Singapore’s still-tight domestic labour market remains a constraint for production. We maintain our 2015 forecast for industrial production to grow 1.3% this year, but the risk of a downgrade in our forecast is high during our next review in July. Our 2015 GDP growth forecast remains at 2.9%,” they noted.