Industrial production (IP) in June 2013 slipped back into negative territory with a -5.9% YoY contraction (revised May 2013: +2.3% YoY; Consensus: -3.5% YoY) following the steep drop in biomedical output. Excluding biomedical, IP fell by a smaller quantum of -0.5% YoY (May 2013: -2.2% YoY). From the previous month, IP gained by +2.6% MoM (revised May 2013: -0.3% MoM) while the seasonally adjusted growth fell by -3.1% MoM (s.a May 2013: +1.2%).

2Q 2013 IP suggests downward revision to the quarter’s GDP. IP in 2Q 2013 was up marginally by +0.2% YoY compared with -6.7% YoY reported in 1Q 2013, and shrank -3.2% YoY in 1H 2013 (1H 2012: +1.5% YoY). Assuming no drastic change in the numbers for the services and construction sectors, the 2Q 2013 real GDP growth should be lower than the advanced estimate of +3.7% YoY as the manufacturing sector turned out to be “flattish” as opposed to the preliminary figure of +1.1% YoY growth. This justified our guarded response to the advance estimate of 2Q 2013 GDP, where despite the better than expected figure that resulted in the preliminary 1H 2013 real GDP growth of +2.0%, we maintained our +2.3% full-year growth forecast.

Biomedical output turned from a driver to a drag. Biomedical output was the biggest drag in June 2013 after driving IP growth in the preceding three months. The sector’s volatile output slumped -23.7% YoY in June 2013, reversing the +22.8% YoY gain in May 2013 as Pharmaceuticals production (accounts for 84% of Biomedical output) fell by -28.9% YoY (May 2013: +25.2% YoY) due to the different product mix compared to a year earlier.

Precision Engineering was the other culprit as the cluster’s output went down for the fifth consecutive month (June 2013: -16.4% YoY; May 2013: -5.6% YoY), mainly on the weakness in Machinery & Systems (June 2013: -20.4% YoY; May 2013: -3.3% YoY) which was affected by lower productions of semiconductor related equipment as well as the drop in the installation of industrial machinery & equipment. Precision Modules & Components (June 2013: -11.0% YoY; May 2013: -8.2% YoY) on the other hand declined as a result of lower output in metal plating and metal & plastic precision components.

Transportation reversed a two-month drop as it gained by +7.4% YoY (May 2013: -11.4% YoY). Aerospace engineering (June 2013: +14.3% YoY; May 2013: -20.5% YoY) which accounts for nearly 31% of the cluster led the charge as a result of more orders for repair and maintenance jobs from commercial airliners, while Marine & Offshore engineering (June 2013: +2.2% YoY; May 2013: -9.5% YoY) benefitted from increased demand for rig-building and oil & gas fields equipments.

Electronics output growth was relatively steady at +2.6% YoY (May 2013: +2.4% YoY) as a result of the surge in the output of Computer Peripherals (June 2013: +30.9% YoY; May 2013: +6.8% YoY) following higher exports demand which offset the declines in Data Storage (June 2013: -9.9% YoY; May 2013: -23.7% YoY) and Infocomms Products & Consumer Electronics (June 2013: -7.0% YoY; May 2013: -13.8% YoY). The other two divisions that contributed positively to electronics output growth were Semi-Conductors (June 2013: +2.0% YoY; May 2013: +10.6% YoY) and Other Electronic Modules & Components (June 2013: +14.9% YoY; May 2013: +39.7% YoY).

Global manufacturing landscape stays mixed. Singapore’s manufacturing PMI readings remained “encouraging” to support our above-mentioned forecast of a firmer GDP growth this year versus last year’s +1.3% as June 2013’s figures for new orders (June 2013: 52.6; May 2013: 53.1) and new export orders (June 2013: 51.5; May 2013: 52.9) stayed above-50. Globally, incoming manufacturing PMI prints for July 2013 saw a surprise rebound to above-50 for the first time in 23 months in Eurozone (July 2013: 50.1; June 2013: 48.8) – Singapore’s second largest market for its non-oil domestic exports (NODX) – led by the pick up in Germany (July 2013: 50.3; June 2013: 48.6), suggesting a bottoming in Eurozone’s recession. However, this was tempered by China – the biggest market for Singapore’s NODX – where the preliminary number for the HSBC/Markit manufacturing PMI (July 2013: 47.7; June 2013: 48.2) hit its lowest point since Aug 2012 amid news that the Chinese government instructed more than 1,400 companies in 19 industries to cut excess production capacity by year end.

Source: Maybank Kim Eng Research - 29 Jul 2013