Towards Financial Freedom
Singapore: Jul IPI Disappoints
- Industrial production (IP) failed to continue its golden run in Jul, surprising market with a mediocre 1.9% increase from a year ago. Market and we were expecting a stronger showing of 6.8% in Jul. Even the favorable base of comparison failed to lift IP. In the previous two months, IP had risen by a revised 8.0% and 6.9% yoy. The slower expansion in IP could be attributed to the larger drop in electronics output (Jul: -5.8% yoy; Jun: -5.0%) as well as weaker expansion in pharmaceuticals, up by just 13.2% yoy in Jul vs. 69% in Jun. Excluding biomedical manufacturing, IPI declined by a smaller 0.4% as compared to Jun's revised 1.1% decline.
- The weakness in the global economy is beginning to manifest itself in the Singapore economy as reflected in the lackluster industrial activities so far this year. Year-to-date, overall industrial output was up by just 1.9% yoy, a far cry from the 7.8% increase for the whole of last year. Besides electronics, chemicals also remained in the doldrums, declining for the third straight month by 2.5% yoy in Jul. Biomedical output (up 13.4% yoy) aside, other bright spots were precision engineering, which after decreasing for two straight months, rose by a healthy 6.7% yoy in Jul and transport engineering (Jul: 5.5% vs. 9.3%).
- This was not the start to 3Q that we would have liked to see but we think that things could pick up in the latter part of the year on the back of favorable base effects and possible improvement in the global environment. We have not discounted further downside risks to growth yet as the Eurozone crisis could still deteriorate and both the Chinese and US economies falter. For now, we maintain our growth expectations at 2.6% in 2012 as compared with the government's narrower forecast of 1.5-2.5%. As for policy, the weaker growth environment and more moderate inflation should provide some room for the MAS to tweak its exchange rate policy. We expect the MAS to maintain its modest and gradual appreciation stance but remove the slight increase in the policy band at its Oct meeting. We think that any departure from the current stance is likely only if the external environment worsens significantly.
Source: OSK
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