Manufacturing, services firms gloomier about next six months

Singapore

MANUFACTURING and services firms have become more downbeat about business prospects in the next six months, with both sectors expressing overall pessimism, according to two surveys released on Thursday.

The surveys, covering firms' expectations for January till June 2019, were released by the Economic Development Board (EDB) for the manufacturing sector and the Department of Statistics (Singstat) for services.

Most manufacturers expect prospects in the first half of 2019 to stay similar to those of the fourth quarter of 2018. However, only a weighted 5 per cent expect conditions to improve, while a weighted 19 per cent see them weakening.

This yields an overall net weighted balance of 14 per cent expecting poorer conditions - a stark worsening of sentiment compared to the previous Q4 survey, where a net weighted balance of 1 per cent expected a softer outlook for the October 2018 to March 2019 period.

In services, most firms also expect business activity to remain the same in H1 2019, compared to the second half of 2018. A weighted 12 per cent were optimistic and 16 per cent were pessimistic, making for a negative net weighted balance of 4 per cent - gloomier than the positive net weighted balance of 3 per cent in the previous quarter's survey.

Singstat said this was due partly to a seasonal effect, noting that the Q1 2018 survey saw a similar dip. However, OCBC Bank economist Selena Ling noted that sentiment was still weaker than the positive weighted net balances of 3 per cent a year ago, and 9 per cent two years ago.

Within the manufacturing sector, the biomedical manufacturing and the transport engineering clusters were upbeat. In contrast, the other manufacturing clusters had negative net weighted balances, with more pessimistic than optimistic firms.

Most downbeat were electronics and precision engineering firms. Both clusters expect weaker orders amid softening demand for semiconductors and related equipment, and growing concerns over trade tensions between the United States and China.

Said Maybank Kim Eng economist Chua Hak Bin: "The gloom might dissipate if the US and China can reach some trade deal in March. Failure to reach a deal, however, could mean a more severe manufacturing collapse over the rest of the year."

Manufacturing output expectations for Q1 2019 are slightly pessimistic, with a net weighted balance of 2 per cent expecting lower output compared to Q4 2018. Most upbeat were biomedical manufacturing and transport engineering, with the chemicals cluster also modestly optimistic.

In contrast, output is expected to fall quarter-on-quarter in electronics, precision engineering and general manufacturing industries. The EDB attributed the weaker production outlook for the former two clusters mainly to the semiconductor slowdown and trade tensions. For general manufacturing, firms are expecting seasonally lower output.

On the labour front, most manufacturers expect employment levels to remain steady quarter-on-quarter in Q1. The electronics, precision engineering and general manufacturing industries clusters expect to hire fewer workers compared to Q4 2018, bringing the overall net weighted balance for the sector's employment change to a negative 2 per cent.

As for export orders in the first quarter, a weighted 75 per cent of manufacturers see no constraints on their ability to obtain export orders, but a weighted 22 per cent of firms cited price competition from overseas competitors and political or economic conditions abroad as the top two limiting factors.

In the services sector, optimistic industries included information and communications and food and beverage services, while pessimistic ones included accommodation, transport and storage, and wholesale trade.

Regarding accommodation and air transport firms' pessimism in particular, Singstat noted that in contrast to H1 2019, H2 2018 coincided with the year-end holiday and festive period, and included the year-end school holidays.

Meanwhile, wholesalers as well as banks and finance companies expect the ongoing trade conflict to have a negative impact on their business.

Said SIM Global Education senior lecturer Tan Khay Boon: "Better prospects may occur if the upcoming Budget has more funds to boost the demand for community and personal services; the halt of interest rate increases may also generate demand for financial services."