Fall in biomedical production surprising, but likely transient: analyst

Demand for pharmaceutical stocks is expected to remain strong throughout 2020.

The biomedical manufacturing’s contraction in July came as a surprise, but will likely only last for a short time given that demand will remain strong for the rest of 2020, reports UOB Global Economics and Markets Research in a macro note.

Biomedical manufacturing shrunk 24.8% YoY during the month, comparatively weaker compared to H1. Production index fell to its lowest level since November 2019 or before COVID-19 struck, noted Barnabas Gan, economist at UOB.

Also read: Manufacturing output dipped 8.4% in July

The double-digit contraction was noted to be a result of the normalisation of biomedical production momentum from its March and April peaks. Production during these months surged 85.6% YoY and 90.1% YoY, respectively. 

Further, the potential ballooning of pharmaceutical stocks may have discouraged further production from the sector, according to Gan.

Despite this, export demand for biomedical products continued to stay strong, with pharmaceutical exports rising 15.5% YoY in July.

“Our view is that the fall in biomedical production may be transient, owing to the likelihood for continued demand for biomedical products for the rest of 2020,” said Gan.

However, any expansion in biomedical manufacturing will remain modest in August and September on the back of high base effects in the previous year. An uptick in global demand for medical necessities may cushion the fall.

Overall, Singapore’s industrial production will contract by 2% in 2020.

“Risks arising from COVID-19 amidst trade headwinds are formidable drags to Singapore’s overall manufacturing environment. Low oil prices, which are expected to stay at least until end-2020, will likely inject further weakness in Singapore’s chemicals and transport engineering clusters as well,” said Gan.

On the upside, bright spots seen in the electronics cluster could persist especially given consumer demand for digital solutions.