Singapore: Industrial Production surprised to the downside in August – UOB

Senior Economist Alvin Liew and Associate Economist Jester Koh at UOB Group assess the recently published Industrial Production readings in Singapore.

Key Takeaways

Singapore’s Aug IP contracted 12.1% y/y, the weakest y/y reading since Nov 2019 while the contraction in Jul’s IP was revised slightly deeper to -1.1% y/y (prior: -0.9%). The 12.1% y/y contraction in Aug IP was significantly worse than Bloomberg’s consensus of -3.1% and even below our more bearish forecast of 6.5%. On a seasonally adjusted basis, IP contracted 10.5% m/m SA in Aug while the previous month’s expansion was revised to a shallower 3.7% (from 4.1%). Likewise, the Aug m/m SA reading was much weaker than Bloomberg consensus of -1.5% m/m SA and our estimate of -4.4%. In the first 8 months of 2023, IP contracted by 6.6% y/y.

IP Outlook – The latest IP reading reaffirms that the electronics downcycle and more broadly, the trade downcycle has yet to find a bottom. With external demand likely to weaken further amidst an elevated interest rate environment and tighter global financial conditions, we expect the weakness in manufacturing activity to persist for the rest of the year and any signs of recovery will only likely to emerge earliest in 1Q24, in our view. Consequently, we downgrade our 2023 full-year industrial production forecast to -7.0% from our earlier projection of -5.4%. Concurrently, we cut our full year 2023 GDP forecast to 0.4% (prev: 0.7%), slightly below the lower end of the MTI’s official projection of 0.5-1.5% and maintain our 2024 growth forecast at 3.0%, albeit with risks to the downside. We expect Singapore’s 3Q23 GDP advanced estimate reading to be released in the week of 09-13 Oct, concurrently with the Oct Monetary Policy Statement, likely on 13 Oct (Fri).