Thursday 28 January 2016

Manufacturing declines 5.2% - worst showing in 14 years

Sharp annual fall reflects deepening recession in sector; December's drop steeper than economists' forecast
By Marissa Lee, The Straits Times, 27 Jan 2016

The manufacturing sector declined 5.2 per cent last year over 2014 - the worst performance in 14 years.

The dismal 12 months was underscored by a 7.9 per cent decline in output for December - the 11th straight month of decline.

The broad-based fall in production last month was steeper than the 7.2 per cent slide tipped by economists in a Bloomberg poll and worse than the revised 6.4 per cent drop in November, according to Economic Development Board data yesterday.

The decline last year highlights the deepening recession the sector is going through.

"This is the sharpest annual contraction in the sector since the dot.com bust in 2001, when industrial production fell 11.6 per cent," said DBS economist Irvin Seah.

Firms are feeling the heat.

Mr Lau Tai San, chairman and managing director of Kim Ann Engineering, a speciality metals supplier to original equipment manufacturers (OEMs), said the fall in OEM volumes is hurting supporting industries like engineering shops, fabrication shops and sub-contractors.

He says businesses are facing difficulties in collecting payments, and that some of his customers are extending their payments by more than 30 days.

"We try to sympathise with customers, gauge them individually. Hopefully banks can do likewise. Market sentiment is not looking very good but we believe after mid-year, maybe there will be a slight improvement," said Mr Lau, who is also vice-president of the Singapore Chinese Chamber of Commerce and Industry.

Economists are not expecting a turnaround any sooner than that.

Last month's fall was due to falling orders on all fronts but one.

Biomedical manufacturing - which surged 16.2 per cent from a year ago - was the only one of Singapore's six manufacturing clusters to expand last month.

If this volatile sector is excluded, output fell 13 per cent.

Electronics output dropped 12.4 per cent from a year earlier, with semiconductor output plunging 17.8 per cent.

"In fact, semiconductor output - comprising nearly two-thirds of total electronics output - has contracted for 18 out of the past 24 months," said UOB economist Francis Tan.

Mr Seah said the 40.3 per centdecline in the marine and offshore engineering cluster was the "most appalling". "Absent an oil price recovery, outlook for the sector is bleak in the medium term," he added.

Economists were split as towhether the bleaker December data could mean a downward revision to Singapore's fourth-quarter gross domestic product out next month.

Citi economist Kit Wei Zheng said it was possible: "We expect downward revisions in services, given the slowdown in trade-related activities and financial services."






Singapore PMI shrinks for 7th month in a row
Manufacturing continues to fall as production, orders, employment plunge
By Marissa Lee, The Straits Times, 3 Feb 2016

The manufacturing recession continues to deepen with factory production, new orders and employment all falling further last month.

The Purchasing Managers' Index (PMI), an early indicator of manufacturing activity, contracted for a seventh straight month to post a reading of 49.0 last month, slightly below December's 49.5 reading. A reading below 50 indicates contraction in the sector. Said Singapore Manufacturing Federation secretary-general Lam Joon Khoi: "Unless businesses transform, this negative trend will continue."

Last year, industrial production contracted 5.2 per cent over 2014, the worst performance in 14 years.

Meanwhile, Singapore's overseas rivals in the value-added segment, South Korea and Taiwan, posted output declines of 0.7 per cent and 1.4 per cent respectively.

Mr Lam is worried that Singapore's factories may lose their competitiveness unless they revamp their business models.

"At the moment, however, there are still many small and medium-sized enterprises that are not yet ready, or are at a loss as to how to create value," he said.



Economists are calling for factories to brace themselves for a very cold winter as Asia's trade recession shows no sign of reversal while China continues to reconfigure its supply chain to bring more production onshore.

ANZ economist Weiwen Ng noted that China's PMI is also contracting: "This suggests that China is transmitting this trade shock to the rest of the world."

DBS economist Irvin Seah said: "Although, historically, manufacturers front-load their orders ahead of the Chinese New Year, chances are high that this festive season will be a relatively quiet one."

The Economic Development Board (EDB) noted in its year-in-review report yesterday that the manufacturing sector's share of national output fell from a high of 27.8 per cent in 2005 to 18.4 per cent in 2013 and 2014.

The agency, which focuses on pulling foreign direct investment into Singapore, said it is exploring ways to "seize new manufacturing opportunities", as a result of advanced technologies such as robotics. "Weak global demand is likely to continue affecting Singapore's manufacturing output, but EDB is confident about the underlying health of the manufacturing sector," it said.

As for those manufacturers who are looking to next month's Budget for some support amid the crunch, OCBC economist Selena Ling said: "It remains to be seen if anything will be done for the manufacturing sector given that policymakers can only offer relief but not fundamentally change the global demand conditions."


No comments:

Post a Comment