Electronics sector surging 24.6% in October offers little cheer

It only comprises less than 30% of manufacturing activities.

UOB is maintaining its 2016 industrial production growth forecast of 1.0%, which implies a 1.0% y/y growth in the remaining 2 months of 2016 despite a better-than expected October results.

The research house notes that however optimistic the electronics cluster may be, it is only 27.4% of total manufacturing activities.

"Concerns on the still-weak exports conditions, particular the uncertainty evolving Brexit, more referendums in the EU, and the possible implementation of import tariffs on US imports from China (where Singapore exports to the latter) will provide lots of uncertainties for Singapore’s manufacturing sector," it said.

Moreover, UOB said that the transport engineering cluster still remains in the doldrums due to the low global oil prices that has been stalling capex in this industry.

Singapore’s industrial production expanded 1.2% (-0.1% m/m SA) in October 2016, a smaller pace compared to the 7.7% y/y (+4.1% m/m SA) increase a month ago.

This was slightly above market expectations of a 1.0% y/y (-2.1% m/m SA) increase.

Excluding biomedical manufacturing, output fell 1.4% y/y (-1.9% m/m SA).

Although October’s manufacturing activities came in weaker than the previous month, the electronics and biomedical manufacturing cluster were supporting the overall numbers.

The electronic cluster’s gained 24.6% y/y in October as growth was supported by semiconductors (+41.7% y/y), the 8th consecutive month of double-digit expansion, in part due to a low base in 2015.

UOB notes that this was in line with the past 10 months of consecutive expansion in the US SEMI Book-to-Bill ratio till September 2016, although the latest date in October saw the ratio falling for the first time below parity to 0.91.

The biomedical cluster expanded 11.3% y/y in October, as pharmaceuticals gained 12.4% y/y, a 2nd month of increase, after contraction for 3 months previously.

Output of the medical technology segment grew 8.2% y/y, the 37th month of consecutive expansion.

The precision engineering cluster grew 2.7% y/y, a 3rd month of expansion, on the back of a 7.3% y/y gain in the machinery & systems segment due to higher export demand in semiconductor related equipment.

The chemicals cluster contracted 0.7% y/y, back into the contractionary zone after only 2 previous months of expansion.

Amongst the poorer-faring manufacturing clusters, the transport engineering cluster contracted 26.9% y/y, falling for 26 out of the past 29 months when global oil prices started its free-fall.

Moreover, the general manufacturing cluster fell 22.2% y/y as all segments posted declines.