SINGAPORE — Industrial production shrank the most in seven months in July, as output for all clusters except electronics fell, underscoring the headwinds the manufacturing sector faces from sluggish global demand and eliciting stark warnings from some analysts. 

From a year earlier, industrial production fell unexpectedly by a sharp 3.6 per cent, ending a four-month run of gains and posting the largest decline since December, data from the Economic Development Board showed. The median forecast in a Reuters survey was for a rise of 0.9 per cent. 

On a seasonally adjusted month-to-month basis, manufacturing output shrank 4 per cent to its third consecutive month of decline, versus the median forecast for a contraction of 1.1 per cent. 

“It’s a hazy day and the numbers are turning from bad to worse … Essentially, the poor industrial production figures reflect the downside risk to growth outlook amid the challenging external environment. There is simply a lack of positive catalysts in the global economy that could potentially lift growth prospects for the manufacturing sector or the economy,” said DBS senior economist Irvin Seah. 

“The green shoots that some talked about two months back are indeed turning into weeds. As economic conditions continue to deteriorate, it pays to stay prudent and cautious. A hunky-dory mindset is not going to help.”

The only cluster to post a gain last month was electronics, where output increased 16.2 per cent on a year-on-year basis. Higher output was registered in the semiconductor segment (34 per cent) but this was partially offset by declines in the rest of the electronics segments. 

The chemicals cluster’s output fell 3.2 per cent, precision engineering decreased 4.9 per cent, biomedical manufacturing contracted 9.7 per cent, general manufacturing industries decreased 10.2 per cent, and transport engineering shrank 21.8 per cent.  

“Only the electronics cluster showed an improvement year-on-year due to better performance in the semiconductor segment but the other segments are still registering a decline in production. 

“The loss of competitive advantage in this cluster is becoming more apparent,” noted Dr Tan Khay Boon, Senior Lecturer, SIM Global Education. 

“In addition, oil prices are unlikely to have any significant rebound without a concerted effort by Opec to reduce output. The low oil price will continue to depress the performance of the marine & offshore engineering segment of the transport engineering cluster. It appears that the manufacturing sector will continue to be a drag on the Singapore economy,” he added.

Amid weak global growth and external challenges, Singapore’s trade-dependent economy has seen a protracted slump in its manufacturing sector and demand for locally-made goods, leading some industry insiders to point to the risk of an economic contraction ahead. 

Non-oil domestic exports last month slumped 10.6 per cent in July, following a 2.4 per cent contraction in June, as orders from all but one of the Republic’s top 10 markets fell. 

Earlier this month, Singapore cut its 2016 growth forecast to between 1 and 2 per cent from 1 to 3 per cent previously, citing uncertainties arising from the United Kingdom’s exit from the European Union, a weaker global growth outlook and a lacklustre domestic performance. 

“Notably, it was the manufacturing sector, riding on the back of a miraculous surge in biomedical, which helped to prevent a GDP contraction while the key services sector faltered in the second quarter. If such sub-par manufacturing performance persists, a contraction in GDP in the third quarter may be on the cards,” Mr Seah cautioned.

UOB economist Francis Tan also pointed out that while the electronics sector has performed well the past few months, the segment only represents 27.4 per cent of total manufacturing activity.

“Concerns on the still-weak exports conditions, particularly the uncertainty revolving Brexit and its impact on Singapore’s exports to the EU, will mar the prospects on other manufacturing clusters. Moreover, the transport engineering cluster still remains in the doldrums,” Mr Tan said, adding that UOB has cut its industrial production forecast for the year to a growth of 1 per cent, from 2.5 per cent previously.