https://www.theedgesingapore.com/cap...cturing-upturn

Maybank: Singapore economy to contract 7% in 2020 despite manufacturing upturn

Ng Qi Siang 27/04/2020, 4:06pm


SINGAPORE (Apr 27): Despite a surprising upturn in manufacturing growth from strong pharmaceutical production, Maybank Kim Eng Research anticipates the Singapore economy to contract by 7% in FY2020 after the extension and broadening of “circuit breaker” measures.

With the government having extended the partial lockdown to 1 June and expanded its definition of “non-essential services”, the research house has reduced its growth forecast from its original prediction of -6%. This figure exceeds estimates by the Monetary Authority of Singapore, which predicted GDP growth of -4% to -1% in its April Monetary Policy Statement.

“We are worried about a wave of retrenchments after the short circuit [breaker] measures ends and when the wage subsidy falls from 75% to 25% for most firms. Businesses will have to adjust their workforce needs to the grim market reality once the wage support drops off. We expect job losses to reach 200,000… given the severity of this recession and extended shutdown of many firms under non-essential services,” reported analysts Chua Hak Bin and Lee Ju Ye, who anticipate an unprecedented 20% plunge in second quarter GDP.

The silver lining in this grim picture is the surprising 6.6% growth in manufacturing in 1QFY2020 compared to Maybank Kim Eng’s flash estimate of -0.5%. Global demand for active pharmaceutical ingredients (APIs) and biological products has more than doubled as countries race to find a vaccine for the coronavirus, resulting in Intellectual Property (IP) pharmaceuticals growing by 16.5% in March, albeit from a low base of a -0.7% in February.

Much of this growth has stemmed from a turbocharged biomedical manufacturing sector, which surged by 91% in March from only 6.7% in February due to flat growth for IP excluding biomedical manufacturing. In total, pharmaceuticals -- 13% of manufacturing and 9.9% of non-oil domestic exports -- saw its highest monthly output ever, rising 127% in March from just in February.

Precision engineering also saw more modest gains of 21%, driven by 29% growth in machinery and systems on the back of higher semiconductor production. Transport engineering - which grew 7.6% - emerged as the dark horse of the manufacturing sector, as land and air transport grew by 15% and 12% respectively though marine and offshore experienced a small decline of 0.7%.

However, strong performances in these industries mask the significant impact the pandemic has had on the wider economy, with services contracting by 3.1%. General manufacturing tumbled 7.9%, driven by a 9.8% reduction in demand for food, beverages and tobacco products. This is expected to drop further as chocolate products, chips, cakes and icecream have been ordered to cease operations as of 22 April 2020 having lost their “essential services” status.

Electronics manufacturing has also experienced a 9.2% contraction, with all-round declines including a steep 23% plunge in the manufacture of computer peripherals and data storage as well as a 7.9% drop in semiconductor manufacturing. While chemicals grew a modest 0.8% in March (down from 5.2% in February), petrochemicals in particular declined by 7.2% as oil prices turned negative following a collapse in global demand.