SINGAPORE -- The worldwide slump in smartphone sales and the slowing semiconductor cycle have been increasingly weighing on Southeast Asia, with official manufacturing output figures weakening across the region.
On Tuesday, Singapore’s Economic Development Board announced that the country’s manufacturing output for January dropped 3.1% from a year earlier, making it the first year-on-year decline since December 2017 and the sharpest fall since July 2016. December’s figure was plus 2.7%.
The main sector that dragged down the figure was electronics, which marked a 13.7% decline from a year prior, worsening from December’s drop of 11.5%. Semiconductors specifically, the biggest weight in the electronics segment, dropped 14.2%.
The precision engineering sector also dropped 15.7%, worsened from the 7% drop in December. The government agency cited “lower production of semiconductor equipment” for the slump.
Singapore, as a city-state with limited land, focuses on these high-end manufacturing products. But at the same time, as a small and open economy, Singapore is more exposed to global trends than neighboring countries.
Most nations in Southeast Asia have not released official manufacturing figures for January yet. But the data through December already shows the weakening trend.
The Philippines’ industrial production output dropped 9.3% in December, the first year-on-year decline in 12 months. The growth rate in the electronics machinery segment dropped to 5.8% growth in December from November's 19%, also the slowest growth in 12 months.
Vietnam’s January growth slowed to 7.9% from December’s 11.4%, according to an estimate by the country’s General Statistics Office. Growth in the electronics sector also slowed in December, the statistics showed.
For Southeast Asia, electronics is one of major manufacturing areas, with the countries having production bases for global and local makers ranging from semiconductor to home appliances. Samsung Electronics, for example, produces a lot of smartphones in Vietnam.
While steady domestic demand will sustain the region's manufacturing businesses as a whole, the tech slump will likely be a key risk in the year ahead.
The World Semiconductor Trade Statistics, a nonprofit organization of semiconductor product companies, said last week that the global chip market is expected to shrink 3% this year, compared to 13.7% growth in 2018 and a 21.6% rise in 2017.
A Singapore government survey in January showed that 46% of electronics firms expected business conditions to deteriorate in the first half of 2019, while only 1% had a positive outlook for the same period.
The tech slump is not the only factor the region faces. The Singapore government earlier this month noted that one of the key risks is China’s slowdown -- growth is expected to slow from last year’s 6.6%. "A sharper-than-expected slowdown of the Chinese economy could adversely affect the region’s growth due to falling import demand from China, especially given regional economies' close interlinkages with China," it said.
Southeast Asian manufacturers have suffered from trade tensions between the U.S. and China, as most countries in the region are entrenched in China’s supply chain. The extension of the U.S.-China trade tariff truce announced Sunday night by U.S. President Donald Trump, therefore, would have given the region’s manufacturers a little relief.
However, concerns over the outlook remain. The Bank of Singapore said in a Monday note, after the Trump announcement, "It is still unclear if we will see protracted trade negotiations or a comprehensive trade resolution ahead."