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Economy

Singapore may avoid recession after production beats forecasts

Electronics output stabilized in July after sharp drops in previous months

The Singapore Economic Development Board said on Monday that production at factories and shipyards fell 0.4% in July on a year-on-year basis.   © Reuters

SINGAPORE (Nikkei Markets) -- Singapore's manufacturing output fell for a third straight month in July but the performance was much better than expected, indicating the city-state may avoid falling into a recession following a torrid second quarter.

The Singapore Economic Development Board said on Monday that production at factories and shipyards fell 0.4% in July, slowing from June's on-year contraction of 8.1%. The consensus estimate of economists polled by Refinitiv had been for a larger retreat of 4.9%.

On a seasonally adjusted month-on-month basis, manufacturing output increased 3.6%, registering the first increase in three months.

"Besides pointing to a better industrial performance ahead, (July's performance) also suggests a lower risk of a technical recession in Singapore if it can be sustained in the coming months," said Irvin Seah, a senior economist at DBS Group.

Singapore's economy contracted by an annualized and seasonally adjusted pace of 3.3% in the second quarter as global sentiment weakened amid worsening trade relations between China and the U.S. The sharp slowdown prompted the government to slash its growth forecast for the full year to between zero and 1% from a previous range of 1.5% to 2.5%.

A technical recession refers to two quarters of sequential decline in gross domestic product.

United Overseas Bank said it now expects manufacturing output to be flat in the current quarter versus its previous estimate for an on-year contraction of 2.0%, and that a small pick-up may occur in the final three months of 2019.

According to EDB, output of electronics contracted 0.9% in July on a year-on-year basis, easing from June's on-year decline of 18.2%. The data storage and semiconductors segments both managed a slight uptick in production, while the rest of the electronic segments recorded a contraction.

Month-on-month and before seasonal adjustments, output of electronics soared 29% according to an index compiled by EDB, with semiconductors gaining a hefty 47%.

Seah of DBS said while global semiconductor equipment billings have pointed to a possible turnaround for the electronics sector in coming months, the latest moves by China and the U.S. to raise tariffs "have once again cast a shadow on that hope".

Electronics have a 27.4% weightage in EDB's manufacturing index. As a whole, the manufacturing sector accounts for about a fifth of Singapore's GDP.

Among Singapore's other major manufacturing clusters, precision engineering fell 7.5% in July from a year ago due to lower production of semiconductor foundry equipment and refrigeration systems.

Chemicals recorded a 2.2% increase in output, helped by gains in fragrances and other specialty chemicals, while biomedical manufacturing grew 0.8% as higher production of medical technology products offset a decline in pharmaceuticals.

In the transport engineering cluster, output fell 0.2% on year as more repair and maintenance jobs from commercial airlines offset weaknesses in areas such as offshore engineering, shipbuilding and repair.

--Kevin Lim

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