Industrial Production (IP) dropped by -2.2% YoY in August 2012 (revised Jul 2012: +2.5% YoY; Consensus: +0.0% YoY). MoM, the seasonally adjusted IP also dropped -2.3% (Jul 2012: -8.7%). YTD, IP rose by just +1.4% YoY (Jan-Aug 2011: +7.3% YoY).

Led by Transport Engineering which slumped by -20.2% YoY (Jul2012: +6.0% YoY), dragged by the contractions in Marine & Offshore Engineering (Aug 2012: -27.2% YoY; Jul 2012: +6.3% YoY) and Aerospace (Aug 2012: -10.0% YoY; Jul 2012: +7.5% YoY) amid slowdown in demand for engine repair jobs and lower contributions from oil rig projects.

Coupled with continued weakness in the Electronics cluster (Aug 2012: -7.3% YoY; Jul 2012: -5.3% YoY) which was down YoY for the 17th month in a row on the back of further sluggishness in export demand.

The above declines offset increases in other industries such as Biomedical Manufacturing (Aug 2012: +13.0% YoY; Jul 2012: +13.8% YoY) amid higher production of pharmaceutical products and medical devices; Chemicals (Aug 2012: +6.6% YoY; Jul 2012: -2.1% YoY) which rebounded on the back of the strong 33.8% YoY growth in petrochemicals induced by the low base effect in 2011 that was due to plant maintenance shutdowns; Precision Engineering (Aug 2012: +3.8% YoY; Jul 2012: +7.8% YoY) and General Manufacturing (Aug 2012: +4.8% YoY; Jul 2012: -+1.7% YoY). Excluding the Biomedical cluster, IP fell by -5.4% YoY (Jul 2012: +0.2% YoY).

July-Aug IP figures hint at possible technical recession in 3Q 2012 on QoQ basis. Singapore’s manufacturing purchasing managers index (PMI) – a short-term gauge on activity – recorded below-50 reading for the second consecutive month in Aug 2012 of 49.1, down from 49.8 in July 2012, suggesting further weakness in IP for Sep 2012. IP in Jul-Aug 2012 contracted -1.4% versus Apr-May 2012, hinting at potentially another quarter of real GDP contraction in 3Q 2013, given that Singapore economy shrank at an annual rate of -0.7% QoQ in 2Q 2012 although IP was up 3.5% QoQ last quarter.

Source: Maybank Kim Eng Research - 27 Sep 2012