Over half of manufacturers expect feeble business conditions

This sentiment is attributed to weakened external demand and supply chain disruptions.

More than half or 56% of manufacturers are projecting a weaker business outlook for the six-month period April-September compared to Q1, according to a survey by the Economic Development Board (EDB). About 4% of those surveyed are looking forward to better business conditions.

This sentiment is largely attributed to weakened external demand and supply chain disruptions, arising from public health measures in many countries to contain the COVID-19 pandemic.

Also read: Manufacturing output up 16.5% in March

This sentiment is largely attributed to weakened external demand and supply chain disruptions, arising from public health measures in many countries to contain the COVID-19 pandemic.

In the chemicals cluster, about 25% of firms are anticipating business conditions to weaken in the months ahead. In particular, the petroleum and petrochemicals segments expect product demand to wane and will weigh on refining and petrochemical margins.

Additionally, firms in the specialties and other chemicals segments expressed concerns about disruptions to feedstock supply and product deliveries.

Meanwhile, 75% and 12% of firms in the electronics and precision engineering clusters, respectively, are expecting business prospects to worsen in the next six months. The pandemic is projected to derail the recovery in the global electronics industry on the back of supply chain disruptions and dampened demand.

“This is likely to weigh on orders for semiconductors in the electronics cluster, as well as semiconductor related equipment and optical products in the precision engineering cluster in the months ahead,” EDB said in the report.

However, EDB noted that the transport engineering cluster is the least optimistic, with a net weighted balance of 79% of firms expecting a weakened operating environment. In the marine & offshore engineering segment, firms anticipate fewer orders for oil & gas-field equipment and lower demand for ship repairing as a sharp decline in oil prices has led to tighter cash flows amongst customers. Aerospace firms also expect lower demand for aircraft engine repair in the next six months due to travel restrictions imposed on the global aviation industry.

On a quarterly basis, 32% of manufacturers are projecting a weaker outlook in Q2 compared to Q1. In addition, 84% of firms in the manufacturing sector expect the employment level in Q2 to remain similar to a quarter ago. Ten percent of manufacturers plan to hire fewer workers in Q2, compared to the preceding quarter.

All clusters, except the electronics cluster, project a smaller workforce in the same quarter.

Apart from hiring adjustments, more than half (52%) of firms in the manufacturing sector reported that there are limiting factors which would affect their ability to obtain export orders in the Q2. Amongst these firms, the top two limiting factors indicated that could affect their export orders are the COVID-19 outbreak and political or economic conditions abroad, such as the lingering risk of US-China trade tensions.

But despite these sentiments, 66% of manufacturers still plan to invest in plant and machinery in the next 12 months, with 51% expecting higher or similar levels of capital expenditure.

The planned investments are largely for the replacement of worn-out equipment and installation of new production technology.