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Economy

Singapore manufacturing hurt by weakness in electronics

Warnings of economic headwinds escalate

SINGAPORE (Nikkei Markets) -- Output from Singapore's factories declined in May, hurt by the continued weakness in electronics production as the ongoing U.S.-China trade war damped sentiment across the globe.

The fall, which pulled output for the first five months into negative territory as compared to a year ago, reinforced concerns that Singapore could sink into a recession, given its huge dependence on trade. Singapore's exports and imports total more than three times gross domestic product, while manufacturing alone accounts for a fifth of the economy.

Speaking at a forum in Singapore on Wednesday, Trade and Industry Minister Chan Chun Sing referred to the many risks, including heightened trade tensions, facing the city-state and said the country should brace for greater economic headwinds in the year ahead.

According to latest data from the Singapore Economic Development Board, manufacturing output fell 2.4% in May from a year ago following a 0.1% uptick in April. The performance was roughly in line with the consensus estimate for a drop of 2.2%.

On a seasonally adjusted month-on-month basis, production declined by 0.7%.

The contraction is likely to continue in June, Maybank Kim Eng economists Chua Hak Bin and Lee Ju Ye said in a note, adding that economic growth in the second quarter would be lower than the 1.2% recorded in the first three months of the year.

Electronics was once again a drag on industrial production, falling 10.8% in May compared to a year ago. For the first five months of 2019, the output of electronics declined 4.5%.

Precision engineering and offshore and marine engineering were the other clusters to disappoint, dropping 10.4% and 11.0%, respectively.

"The decline in manufacturing momentum is not isolated to Singapore, but rather, also seen broadly across other key Asian economies," said Barnabas Gan, an economist at United Overseas Bank in Singapore, citing Taiwan, South Korea, Japan and the Philippines as examples.

At the same time, the external environment is softening due to the negative spillover from the ongoing U.S.-China trade conflict, he added.

Singapore's economy has slowed sharply since the middle of last year, with GDP growth in the first quarter coming in at just 1.2%. In May, non-oil exports fell for a third straight month as shipments of electronics saw the steepest year-on-year decline since January 2009.

Singapore publishes trade figures in local dollar terms, while manufacturing data are based on an index that assigns greater weight to industries like pharmaceuticals due to the higher value-added in production.

According to Maybank Kim Eng, the base case for Singapore now factors in a shallow technical recession, defined as two quarters of sequential contraction, in the July-September period. A U.S.-China trade deal, if any, is unlikely to materialize before the fourth quarter, its economists said.

In his speech, Trade and Industry Minister Chan pointed to other looming risks, including the possibility of a sharper-than-expected slowdown in China as well as further stresses on the global economy arising from Britain's departure from the European Union.

"While we all hope that the U.S. and China can resolve their differences amicably, the ongoing tensions are a manifestation of fundamental political and economic differences between the two countries which will take time to resolve," he said.

--Kevin Lim

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