Why the strong performance by the manufacturing sector will be short-lived

Global tech head winds will slow down manufacturing output in 1H17.

The Singapore economy received a significant boost in 4Q16 due to the rapid expansion in the manufacturing sector. According to BMI Research, both manufacturing and services recorded strong performances, with manufacturing growing by 14.6% QoQ, reversing the 8.1% QoQ contraction in the previous quarter.

Services also expanded by 9.4% QoQ, compared to the -0.4% in the previous quarter. Construction activity remained in contraction, coming in at -4.7% QoQ versus 14.8% in Q316.

However, BMI Research argued that the strong manufacturing print will not be sustained.

"We believe that the strong print for the manufacturing sector is temporary and expect the sector to face a difficult outlook over the coming quarters. The restructuring of Singapore's labour force away from a high dependence on foreign workers towards one that is increasingly based on mechanisation will continue to undermine manufacturing output in Singapore," the research house said.

It added, "In our view, the uptick in electronics growth in Q416 is unlikely to be repeated over the coming quarters as the global tech cycle winds down slowly in H117. Meanwhile, we expect the Chinese economy to continue slowing gradually as structural weaknesses such as overcapacity continue to weigh on growth in 2017.”