Singapore: Positive surprise from Industrial Production – UOB

Singapore’s Jun industrial production (IP) contracted by less than forecast while May’s contraction was also revised smaller, both factors likely to affirm the economy avoided a technical recession in 1H. IP contracted by -4.9% y/y in Jun, better than Bloomberg’s median forecast of -6.0% y/y and our more bearish forecast of -13.7% y/y. The May IP contraction was also revised to a smaller 10.5% y/y (versus the prelim estimate of -10.8% y/y).

This was the ninth consecutive month of y/y decline and marked the worst streak since 2015 (11 months of y/y declines), but based on the latest IP data, this implies that manufacturing contracted by -7.3% y/y in 2Q, a slight improvement from MTI’s advance estimate of -7.5% y/y which was released on 14 Jul. This means that there is likelihood for a small upward revision to 2Q 2023 GDP growth advance estimate of 0.7% y/y (by 0.1ppt) to 0.8% y/y, assuming no significant changes to the growth of services and construction in 2Q. 

IP Outlook – While we are heartened by the surprise rebound in semiconductors output in Jun, it may be too soon to call for a turnaround in the electronics downcycle. The slower growth in the transport engineering components of aerospace and marine & offshore, also add caution to the manufacturing outlook. With IP contracting by -6.3% YTD, we maintain our forecast for Singapore 2023 manufacturing to contract by -5.4%, which implies a tepid recovery profile in 2H. We still expect Singapore’s full year GDP growth at 0.7% in 2023 (lower end of the official growth forecast range) reflecting our more cautious external outlook and manufacturing weakness.