Econ­omy Watch

The semi­con­duc­tor seg­ment has the high­est level of pro­duc­tion to date, and will help Sin­ga­pore’s man­u­fac­tur­ing sec­tor pull through in 2017.

Singapore Business Review - - CONTENTS -

The man­u­fac­tur­ing sec­tor is be­ing closely mon­i­tored by an­a­lysts as Sin­ga­pore pushes through with its am­bi­tious eco­nomic re­struc­tur­ing be­cause an un­der­per­for­mance could spell dis­as­ter for the trade-de­pen­dent coun­try. Hopes are high that man­u­fac­tur­ing ex­ports will hold up on the back of ro­bust semi­con­duc­tor de­mand, but do­mes­tic man­u­fac­tur­ing in­dus­tries will still face a tougher time due to slower con­sump­tion and an on­go­ing prop­erty price slump.

Sin­ga­pore’s econ­omy is un­der­go­ing re­struc­tur­ing to­wards high­er­wage jobs and in­creased labour pro­duc­tiv­ity, which has led to worker lay­offs. Whilst this tran­si­tion to leaner man­u­fac­tur­ing op­er­a­tions has caused some dis­rup­tion, an­a­lysts hold a pos­i­tive out­look for the sec­tor.

“Over­all, the is­land’s fac­to­ries re­main in good shape,” says RHB Group, fore­cast­ing man­u­fac­tur­ing out­put to grow 4% in 2017, sur­pass­ing the 3.6% ex­pan­sion in 2016. “The pro­jected slight im­prove­ment in man­u­fac­tur­ing out­put this year will be un­der­pinned by three fac­tors. First, key fi­nal de­mand des­ti­na­tions, namely, the

US, EU, and China should post stronger eco­nomic growth. Sec­ond, the ASEAN economies, sup­ported by higher com­mod­ity prices, will also show im­prov­ing growth. Fi­nally, there will be stronger semi­con­duc­tor de­mand, sup­ported by the cycli­cal smart­phone su­per-cy­cle,” it says.

Chia Shuhui, se­nior Asia an­a­lyst at BMI Re­search, shares this up­beat de­mand out­look: “The man­u­fac­tur­ing sec­tor con­tin­ues to shed jobs amidst on­go­ing re­struc­tur­ing. How­ever, near-term man­u­fac­tur­ing weak­ness will be capped by still-high global de­mand for semi­con­duc­tors, which will pro­vide some sup­port and have pos­i­tive spillover ef­fects on other sec­tors.”

EDB Sin­ga­pore’s monthly man­u­fac­tur­ing per­for­mance re­port for April 2017 shows the brisk growth of the semi­con­duc­tors seg­ment at 69.1%, which helped the elec­tron­ics clus­ter’s out­put ex­pand fast in April at 48.0% year-on-year. The ma­chin­ery & sys­tems seg­ment also grew 23.1% due to higher ex­port de­mand for semi­con­duc­tor re­lated equip­ment.

Ac­cord­ing to Chua Hak Bin, an­a­lyst at May­bank Kim Eng, this was the 14th con­sec­u­tive month of dou­ble-digit ex­pan­sion for the semi­con­duc­tor seg­ment and recorded the high­est level of pro­duc­tion to date, lead­ing to a full-year GDP growth fore­cast of 3%.

“The global de­mand for semi­con­duc­tors re­mains strong, as re­flected by the global Pur­chas­ing Man­agers In­dex num­bers that are still in ex­pan­sion phase and the con­tin­ued in­crease in Sin­ga­pore’s elec­tron­ics non-oil do­mes­tic ex­ports (NODX). We think growth will con­tinue to broaden from elec­tron­ics and tradere­lated seg­ments to other seg­ments of ser­vices,” says Chua.

Semi­con­duc­tor de­mand

RHB Group ex­pects semi­con­duc­tor de­mand to re­main a pos­i­tive driver of elec­tron­ics man­u­fac­tur­ing growth in the sec­ond half of 2017, al­beit at a more mod­er­ate pace af­ter the strong gain in the first half of this year. This is in an­tic­i­pa­tion of lower flag­ship phones’ vol­ume sales com­pared to mid-tier coun­ter­parts.

Most seg­ments in the elec­tron­ics clus­ter showed strength in April, record­ing higher out­put. Com­puter pe­riph­er­als (+5.6%), con­sumer elec­tron­ics (+4.4%) and other

Whilst this tran­si­tion to leaner man­u­fac­tur­ing op­er­a­tions has caused some dis­rup­tion, an­a­lysts hold a pos­i­tive out­look for the sec­tor.

Man­u­fac­tur­ing ex­ports are ex­pected to hold up

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