SINGAPORE (Nikkei Markets) -- Singapore's factory output defied expectations to edge higher in April as the vital electronics segment showed signs of stabilizing after an extended downtrend.
But economists said the recovery could be short-lived given the slowing global economy and rising tensions between the U.S. and China that have broadened to the technology front.
"It is still too early to tell if the positive manufacturing growth streak will last," said Selena Ling, head of treasury research and strategy at Oversea-Chinese Banking Corp.
She added that purchasing managers' index readings for key trading partners like the U.S., Europe and Japan remained soft while the escalation in U.S.-China trade tensions did not bode well for near-term momentum.
In a bid to increase the pressure on Beijing, the Donald Trump administration recently blacklisted Chinese telecommunications company Huawei amid concerns that it posed a security threat. As a result, firms in the U.S. and elsewhere have started to limit their dealings with Huawei.
Semiconductor production in Singapore could be hit as several key chip players, including Micron Technology and Broadcom, which have a large presence in Singapore, will have to comply with U.S. export controls, said Maybank Kim Eng economists Chua Hak Bin and Lee Ju Ye in a note.
The electronics cluster performed better than expected in April with a 0.6% fall year-on-year, sharply lower than its 15.1% plunge in March. The improvement was due to semiconductors, which rose despite a high base in the previous year.
However, the government has already warned that the electronics and precision engineering clusters may face strong headwinds due to a sharper-than-expected downturn in the global electronics cycle, as well as uncertainties arising from the trade conflicts.
Earlier this week, the Ministry of Trade and Industry cut its annual growth forecast to 1.5% to 2.5% from the previous 1.5% to 3.5% and said the global outlook remains clouded by uncertainties and downside risks.
The Economic Development Board's manufacturing index for April also showed declines in areas such as offshore marine and precision engineering, although these were offset by higher production of pharmaceuticals and medical devices.
Overall, the index rose 0.1% on year in April, better than economists' expectations for 3.5% decline and a slight recovery from March's 4.3% fall.
On a seasonally adjusted month-on-month basis, manufacturing output increased by 2.4% in April after retreating in the previous two months.
According to EDB, production of pharmaceuticals expanded by 10.9% on-year in April, driven by biological products. Production of medical technology devices rose 12.0% on the back of sustained export demand.
The petrochemicals segment, however, contracted 2.8%, while the offshore and marine engineering segment declined 18.7% on year.
Precision engineering fell 10.4% due to lower output of industrial process control and semiconductor-related equipment.
Looking ahead, James Cheo, chief market strategist for Southeast Asia at HSBC Private Banking, said the slowdown in Singapore's economy could continue for some time as the electronics cycle is only expected to turn around towards the later part of this year.
"Singapore is like a small boat in a big ocean, so we are exposed to all the big forces," he said.