DBS predicts Singapore’s manufacturing sector will remain sluggish

Pharmaceutical segment's 20% growth decline remains a threat.

According to DBS, the industrial production index for Jan13 surprised on the downside. The headline production index contracted 0.4% YoY. Excluding the biomedical segment, output was up 3.3%. On a sequential basis, production shrunk 9.2% MoM sa in the month. The decline would have been less acute at 4.0% if the biomedical cluster was excluded.

DBS adds, this is still pretty much in line with its view that growth momentum within the manufacturing sector will remain sluggish in the near term.

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Well, that’s the irony of Singapore’s manufacturing sector. Just when it seems that production output may have bottomed and will likely mirror the improvements seen in some regional economies, the ever-so-volatile biomedical segment decided to throw a spanner into the works.

Biomedical output contracted 14% YoY, led by a 20% drop in pharmaceutical.

As it is, the biomedical cluster has already surpassed the electronics industry to become the largest segment (25.5%) within the broader manufacturing industry.

Yet, it is the most volatile segment. When you have the most volatile segment now being the biggest driver as well, it’s not hard to imagine how the recovery path for the manufacturing sector will look like in the coming months. Bumpy would be an understatement.

Unless, of course, electronics is able to pick up from its current doldrum to provide some respite. But it is tough to place our bet on that given that the local manufacturers are not that well plugged into the global smartphone supply chain.

Moreover, competition from cheaper regional players has further undermined the performance of the industry even while demand for other electronics products is grinding gradually north.

For signs of a more pronounced improvement, we’ll probably have to wait till the second quarter.