Is Singapore on the path towards stronger IP annual growth?

In September, manufacturing output grew 10.7% MoM.

With improving global trade winds and a gradual recovery in China-centric numbers, an expert believes Singapore's manufacturing momentum will strengthen in the last quarter of the year.

According to RHB Acting Group Chief Economist Barnabas Gan, there have been "very early signs of China’s economic recovery, as seen from the stronger-than-expected 3Q23 GDP and higher momentum in its high-frequency numbers."

"We think that a stronger China would mean a further recovery in Asia’s trade and manufacturing landscape and higher China’s outbound tourism to ASEAN. As such, we think that there is a material chance for Singapore’s manufacturing growth on an annual basis to turn positive at year-end," Gan said.

Gan added that RHB's view for Singapore’s manufacturing momentum to strengthen into 4Q23 has "materialised very nicely, with its sequential growth surging 10.7% MoM."

Gan said the uptick in sequential growth in Singapore’s manufacturing landscape is likely a response to the relatively more robust NODX (+11.1% MoM) in the same month. 

"Coupled with 3Q23’s GDP growth of +1.0% QoQ, recent incoming data is nothing but crystal-clear evidence pointing towards a rosier economic backdrop into 2024," Gan added.

Outlook for electronics, precision-engineering transport engineering, and general manufacturing industries in the next six to 12 months is also positive, said Gan.

"We see evidence of a bottoming of global semiconductor demand, which has empirically supported Singapore’s industrial production activities since 2024," Gan said.

"As a small and open economy, Singapore will benefit from ASEAN-6’s uptick in export momentum to the US and China. The increased economic activities across ASEAN will likely support transport engineering activities amid the gradual recovery of tourism levels," Gan added.

UOB Economist Alvin Liew, for his part, echoed that there has been a tentative sign of a bottom in the electronic cycle.

"On a six-month moving average year-on-year (6MMA YoY) basis, electronics IP saw a milder contraction of -6.5% in Sep (Aug: -9.2%, Jul: -7.9%) from the weakest reading observed in Jun 2023 (-9.6%)," Liew said.

"Electronics NODX also saw a milder drop by -11.6% YoY in Sep (Aug: -21.1%). In addition, export performance in the electronics/semiconductor powerhouses, South Korea and Taiwan, continued to see recent improvements on possible stronger end demand," Liew added.

Liew, however, said that given the still weak external backdrop of tight financial conditions stemming from an elevated interest rate environment, UOB remains cautious to conclude that the "electronics cycle has indeed bottomed." 

Liew said there need to be improvements in the subsequent electronics manufacturing/NODX prints to conclude, adding that recovery will only likely happen towards the middle of 2024.