Singapore's industrial production fell 8% in August

This is the steepest drop in almost four years.

Singapore’s industrial production (IP) defied market expectations of temporary stabilisation, falling by 8% YoY and 7.5% MoM for the month of August.

This is the biggest contraction recorded since December 2015.

The dismal electronics production dragged down IP after it diminished 25% MoM in August to reverse its positive 23.9% MoM recovery in the previous month.

“The decline in manufacturing momentum is driven by the sustained fall in semiconductor demand across Asia amid the uncertainties felt from the ongoing trade tensions which had broadened to the global technology sector,” noted UOB Kay Hian.

In contrast, biomedical manufacturing continued to expand for its 11th straight month, UOB Kay Hian added. The sequential pharmaceutical production also improved after two straight months of contraction, noted HSBC Global Research.

Analysts are torn regarding the implications of the IP decline. UOB Kay Hian believes that these month’s numbers indicate a higher risk for technical recession.

“The risk of a technical recession in the third quarter of 2019 has magnified given the latest industrial production print. Given the August manufacturing data, industrial production growth in the first two months of Q3 has averaged -4.0% YoY, and a potential contraction in September around -4.5% YoY or more should trigger a technical recession scenario,” said UOB Kay Hian.

In contrast, HSBC Global Research expects Singapore to “narrowly escape” technical recession this year thanks to the expected expansion of the services sector in the third quarter.

“We believe growth in the services sector will bounce back in Q3, which should allow the Singapore economy to narrowly escape technical recession this year. However, given the ongoing weakness in externally-driven sectors, MAS is likely to ease monetary policy in the October meeting. We expect the central bank to reduce the slope of the SGDNEER by 50bps. Next year, we expect the government to deliver a highly expansionary FY2020 budget,” the report read.