Manufacturing slumps, construction shines in Q4 as economic growth slows to 3.8% in 2022: MTI estimates

SINGAPORE — While business was looking up for one steel servicing and processing firm earlier in 2022, the second half of the year painted a different story as interest rates hiked and demand for his manufactured products pulled back. 

So, production at the firm dropped, which meant that his company had to hire cautiously even when it needed the manpower, said managing director of Kawarin Enterprise Ken Lin. He did not provide any figures due to commercial sensitivity. 

"(We used to) just hire based on what we need," said Mr Lin. "But now we are concerned that when we (do so), maybe later on we might need to cut (manpower again)."

Mr Lin's experience comes as the Government released new data on Tuesday (Jan 3), showing that Singapore's manufacturing sector shrank by 3 per cent in the fourth quarter last year on a year-to-year basis. This is the first time that it dipped into negative figures in 2022.

Meanwhile, the construction sector continued to shine in that period, contributing to the 3.8 per cent overall economic growth for the whole of 2022, according to estimates released by the Ministry of Trade and Industry (MTI). 

This is about half of the 7.6 per cent growth in the Republic's gross domestic product (GDP) for 2021, the data showed.

From October to December 2022, GDP grew by 2.2 per cent compared with the same period in 2021, slower than the 4.2 per cent year-on-year growth seen in the third quarter last year.

On a seasonally adjusted basis, the economy expanded by 0.2 per cent in the fourth quarter of 2022 compared with the July to September period, which recorded a 1.1 per cent quarter-on-quarter expansion.

WHY IT MATTERS

Singapore's manufacturing industry is responsible for more than a fifth of the Republic's economy as of 2021, contributing one of the largest slices of the GDP pie among the various industry sectors. For example, the finance industry contributed about 14.6 per cent of Singapore's GDP in 2021.

The manufacturing sector also hires more than 12 per cent of the workforce in 2021, according to the latest full-year data.

Meanwhile, the construction sector contributed around 2.9 per cent to Singapore's nominal GDP in 2021 and employs around 11.2 per cent of all workers that year.

HOW MANUFACTURING AND CONSTRUCTION DID

Giving a breakdown of Singapore's fourth quarter economic performance, MTI's data showed that the manufacturing sector contracted by 3 per cent in the fourth quarter last year, compared with the fourth quarter of 2021.

• This was a reversal from the 1.4 per cent growth in the third quarter
• On a quarter-on-quarter seasonally adjusted basis, the manufacturing sector expanded by 1.8 per cent in the fourth quarter, a turnaround from the 3.9 per cent contraction in the preceding quarter
• MTI attributed this to output contractions in the electronics, chemicals and biomedical manufacturing clusters
• These clusters negated growth in other fields within the manufacturing sector, such as in precision engineering, transport engineering and general manufacturing

The construction sector, on the other hand, grew by 10.4 per cent year-on-year in the fourth quarter.

• This was a significant expansion from the 7.8 per cent growth seen in the preceding quarter
• On a quarter-on-quarter seasonally adjusted basis, the sector expanded by 0.4 per cent in the October to December period, extending the 3.8 per cent expansion recorded in the third quarter
• The continued expansion of the sector comes "as both public and private sector construction output continued to recover", said MTI
• However, in absolute terms, the value-added of the construction sector remained 19.3 per cent below its pre-pandemic level in the fourth quarter of 2019, MTI added

WHAT MANUFACTURERS AND EXPERTS SAY

OCBC's head of research and strategy Selena Ling told TODAY that momentum for the manufacturing sector has been faltering, given the growing global recession and demand pullback concerns and with demand for electronics losing steam. She highlighted the dwindling demand in semiconductors as a factor.

The forecast for the manufacturing sector remains murky, as demand is set to remain tepid.

Precision engineering company Certact Engineering's finance manager Daryl Chia said that his firm had seen an increase in sales of about 30 per cent in 2022, compared with 2021. However, this figure could have been higher if not for a 20 per cent slowdown in growth in the fourth quarter compared to the previous quarter. 

In particular, he said that a slowdown in output demand was observed in November and December last year. 

Mr Lin from Kawarin said that he does not expect the situation to improve until at least the second half of this year. 

"With the China market slowly opening up (its economy) and interest rate hike tapering, we are looking (forward) to a brighter 2023," he said. 

As for the construction sector, Ms Ling said that the accelerated inflow of foreign manpower has helped to boost it, and so it is no surprise that the sector's output in the fourth quarter is "healthy".

"With the reopening of China market, there should be sustained momentum for the construction sector in the quarters ahead," she added. 

WHAT ABOUT THE SERVICES INDUSTRY?

Overall, the services industries expanded by 4.1 per cent year-on-year in the fourth quarter of 2022, and 5 per cent year-on-year for the whole year.

The wholesale and retail trade, and transportation and storage sectors collectively grew by 2.3 per cent year-on-year in the fourth quarter, with all sectors within the group recording expansions. 

• However, the growth in the fourth quarter was slower than the 5.7 per cent growth in the previous quarter
• Growth in the transportation and storage sector was largely supported by the air transport segment, which saw robust growth on the back of a strong recovery in air passengers handled

The group of sectors comprising the information and communications, finance and insurance and professional services grew by 2.9 per cent year-on-year in the fourth quarter, extending the 3.6 per cent growth in the previous quarter.

• All sectors within the group expanded during the quarter, and growth in the information and communications sector was supported by continued strong demand for IT and digital solutions
• Growth in the professional services sector was mainly driven by the architectural and engineering, technical testing and analysis segment
• For the finance and insurance sector, growth was primarily supported by activities auxiliary to financial services, which include payment processing activities
• Ms Ling said that for this group of sectors, their growth, while still positive, is "moderating in line with the overall global growth expectations"
• "Their hiring and wage expectations, which had benefited significantly in 2022, should start to taper in line," she said

Meanwhile, the accommodation and food services, real estate, administrative and support services and other services sectors, grew by 8.2 per cent year-on-year in the fourth quarter, extending the 9.3 per cent growth in the previous quarter.

• All sectors within the group posted expansions during the quarter as activities continued to recover with the lifting of domestic Covid-19 and border restrictions since April 2022
• For instance, the accommodation sector expanded for the first time since the second quarter of 2021 on account of a strong recovery in international visitor arrivals, said MTI