Manufacturing sector outlook remains soft for H2
The transport engineering cluster is the most pessimistic as firms expect a weak environment.
Business sentiment in the manufacturing sector remains subdued as 31% of manufacturers are projecting a softer business outlook for H2, a survey by the Economic Development Board (EDB) revealed.
This was attributed to the continued spread of the COVID-19 pandemic and uncertainty in global trade and macro conditions. A weighted 24% of manufacturers anticipate business conditions to improve. Overall, a net weighted balance of 7% of manufacturers predict a less favourable business situation in H2, compared to Q2.
Only 3% of manufacturing firms in the precision engineering cluster expect an improved operating environment over the same period. The cautious optimism is largely due to the precision modules and components segment, which expect a gradual resumption of activities. In contrast, the machinery and systems segment is less optimistic about the next six months.
In the electronics cluster, only 1% of firms anticipate an improved business outlook, as the semiconductors segment foresees resilient demand from the 5G market, cloud storage and data centres. However, the infocomms and consumer electronics and other electronic modules and components segments expect orders to be negatively impacted by COVID-19 and US-China tensions as well.
About 22% of the biomedical manufacturing cluster predict a weak business environment in H2, no thanks to the softer outlook in the pharmaceuticals segment where there are some concerns over potential delays in the supply chain. However, the medical technology segment is more optimistic about the operating environment ahead, given that its export markets are gradually re-opening.
The transport engineering cluster is the most pessimistic as 43% of firms are expecting a weak operating environment in H2.
In the marine and offshore engineering segment, oil and gas-field equipment manufacturers anticipate less orders amidst the low oil price environment, whilst the shipyards continue to expect lackluster demand for oil-rigs. In the aerospace segment, firms expect demand for aircraft engine repair to be adversely affected by the grounding of commercial aircraft due to the ongoing travel restrictions in most countries.
Cautious outlook on output
Six percent of manufacturers are projecting output to fall in Q3, compared to Q2. Firms are generally cautious about their production plans, due to the COVID-19 pandemic as well as the uncertainties in global trade and macroeconomic conditions.
The precision engineering cluster is the most optimistic with a net weighted balance of 34% projecting a higher level of production in the next quarter. Within the cluster, the machinery and systems segment anticipates increased production of semiconductor-related equipment to fulfill backlog orders. The precision modules and components segment also foresees higher demand for optical products.
On the other hand, 7% of firms in the general manufacturing industries cluster expect an output decline. The printing segment foresees a decreased volume of commercial print jobs, whilst the miscellaneous segment continues to anticipate lower production of construction-related materials as local construction activities have not fully resumed.
A net weighted balance of 8% of respondents in the chemicals cluster project a lower level of output in the next three months. In the specialties and other chemicals segments, firms are expecting a weak regional demand for mineral oil additives and flavours and fragrances respectively.
In the transport engineering cluster, a net weighted balance of 35% of firms project a lower level of activity in the third quarter of 2020. The marine and offshore engineering segment expects lower volume of work due to order cancellations in the oil & gas-field equipment industry. In addition, movement restrictions at foreign worker dormitories have also affected the shipyards’ ability to secure more ship-repair orders.
In addition, the aerospace segment also continues to expect lower maintenance, repair and overhaul of aircraft, given fewer international flights due to restrictions on global air travel.
The biomedical manufacturing cluster is the least optimistic amongst the clusters as 37% of firms are expecting production levels to slip in Q3. This is also driven by the pharmaceuticals segment, which projects their output to drop in producing active pharmaceutical ingredients and biological products, down from a high in the preceding quarter.
On the labour front, 83% in the manufacturing sector expect the employment level in Q3 to remain similar to its Q2 levels. Overall, a net weighted balance of 7% of manufacturers plan to hire less workers in Q3. All clusters, except the biomedical manufacturing cluster, project a smaller workforce for Q3.