Manufacturing bullish for next two quarters

The struggling sector puts on its rose-colored glasses in a survey as it sees "better business conditions" to prevail until September.

A net weighted balance of 15% manufacturers expect a more robust performance period from April to September 2012, according to a new business expectations survey from the Economic Development Board (EDB).

What's fueling the optimism? Semiconductors is anticipating a strong demand rebound for chips while other industry clusters like general manufacturing, precision engineering and chemicals are also expecting positive turnarounds in their respective markets.

Here's more from EDB:

Business Sentiments for April. The manufacturing sector expects September 2012, compared to the first quarter of the year. Overall, a weighted 19 per cent of manufacturers foresee an improved outlook, while a weighted 4 per cent predict deterioration. This results in a net weighted balance of 15 per cent of manufacturers expecting a more favourable business situation ahead, a turnaround from the 11 per cent of manufacturers that had expected deterioration in the preceding quarter.

The positive business sentiment is broad-based with all manufacturing clusters projecting better business conditions for the period April – September 2012, compared to a quarter ago. However, many firms are still concerned with the global economic uncertainties in relation to the strength of US recovery, the European debt crisis and high oil prices.

Within the manufacturing cluster, the electronics cluster is the most upbeat, with a net weighted balance of 30 per cent of firms expecting better business prospects in the next six months, compared to a quarter ago. This optimistic outlook is led by the semiconductor segment, which anticipates improved global demand for chips in the months ahead as inventory levels are adjusted downwards.

The general manufacturing cluster is the next most optimistic, with a net weighted balance of 19 per cent of firms in the cluster expecting business situation to improve in the next six months ending September 2012. In particular, the other manufacturing industries segment projects positive business conditions over the next two quarters, supported by demand from the construction sector.

In the precision engineering and chemicals clusters, a net weighted 9 per cent of firms in each cluster predict an improved business outlook in the next six months compared to a quarter ago. Within the precision engineering cluster, the semiconductor equipment, bonding wires and connectors manufacturers are the most optimistic. In the chemicals cluster, while the firms expect a better business situation ahead, they are also mindful of possible margin erosions as a result of high raw materials prices.

Output Forecast. Compared to the first quarter of 2012, a net weighted balance of 22 per cent of manufacturers expects output to increase in the second quarter of 2012.

Employment Forecast. Employment prospects in the manufacturing sector for the second quarter of 2012 are positive, with all manufacturing clusters expecting to hire workers. A net weighted balance of 8 per cent of manufacturers plan to increase employment in the next 3 months, compared to a quarter ago.

Factors Affecting Export Orders. A weighted 45 per cent of firms in the manufacturing sector reported no limiting factors that will affect their ability to obtain direct export orders in the second quarter of 2012. The weighted 47 per cent of firms that indicated export constraints cited price competition from overseas competitors and economic and political conditions abroad as the most important limiting factors.

Investment Plans for April 2012 – March 2013. A weighted 68 per cent of manufacturers plan to invest in plant and machinery in the next twelve months (April 2012 – March 2013) compared to the past twelve months, of which a weighted 53 per cent expect higher or similar levels of capital expenditure. The planned investments are mainly for the replacement of worn-out equipment, and expansion of production capacity for both existing products and new products.