Potential slight downgrade in Q1 GDP growth after March factory output expansion misses: economists

Business Times

25-04-2025

[SINGAPORE] Private-sector economists are watching for a potential downward revision to Q1 2025 gross domestic product growth from the advance estimate, after manufacturing output underperformed in the quarter. The Republic's factory output gained 5.8 per cent year on year (yoy) in March, strengthening from the previous month's upwardly revised growth of 0.9 per cent, data from the Economic Development Board (EDB) showed on Friday (Apr 25). This was as manufacturing for the key electronics cluster recovered.
But the latest reading missed private-sector economists' forecasts of an 8.1 per cent expansion in a Bloomberg poll. It also came amid a favourable base effect, economists pointed out.
Excluding the volatile biomedical sector, March's industrial production rose 4.9 per cent on the year, up from February's revised growth of 2.8 per cent.
On a seasonally adjusted monthly basis, manufacturing output fell 3.6 per cent in March. Excluding biomedical manufacturing, output decreased 0.8 per cent month on month.
OCBC, UOB, Barclays and Maybank economists noted that advance GDP growth estimates of 3.8 per cent yoy for Q1 factored in a 5 per cent growth on year for the manufacturing sector.
March's industrial production outturn translates to a possible one percentage point downward revision to the first quarter's manufacturing growth to 4 per cent, they said. This hence implies a downgrade of Q1 GDP growth estimate to about 3.6 per cent, assuming other conditions remain unchanged.
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Darker skies ahead
DBS senior economist Chua Han Teng believes that the outlook for the export-oriented manufacturing sector will likely weaken – especially for the second half of this year.
Singapore's factories 'remain vulnerable to the heightened unpredictability and uncertainty from the US tariff roller coaster', he said, adding that base effects will also be high in H2.
Various US consumer surveys are already reflecting a slump in consumer sentiment, added UOB associate economist Jester Koh. Furthermore, weaker successive readings in sub-indices of Singapore's overall Purchasing Managers' Index are 'early signals of intensifying headwinds in the manufacturing sector', he said.
Maybank's Chua Hak Bin and Brian Lee expect exports and manufacturing output to turn negative in H2, if US President Donald Trump's sweeping tariffs remain in place.
This despite the 'silver linings' they highlighted that could cushion the sector.
A lower effective tariff rate is levied on Singaporean goods compared to other countries in the region, due to exemptions of certain products from the reciprocal tariffs. Supply chains could also be moved in Singapore's favour, given that the city-state is subject only to baseline tariffs.
They also believe that front-loading could continue in Q2, during the 90-day reprieve for reciprocal tariffs and temporary exemptions on some electronics goods.
OCBC chief economist Selena Ling said that the domestic manufacturing outlook 'remains uncertain', depending on the outcome of negotiations during the 90-day suspension period for reciprocal tariffs, and the extent that dampening effects on business and consumer confidence impacts global demand conditions.
However, she added: 'Even assuming that some of the tariffs – especially on China – are partially unwound over time, if companies have put on hold their capex, investments or hiring intentions, this would still imply some downside growth risk.'
Still, she thought that the official forecast of 0 to 2 per cent growth, revised downwards earlier this month, 'appears to have accommodated a significant slowdown in the coming months'.
Barclays analysts Brian Tan and Liu Hongying disagreed, saying that the cut 'appears to be backward-looking, incorporating mainly the Q1 GDP downside surprise – and not necessarily significant future tariff-related weakness'. They believe that policymakers are 'still too hopeful'.
Performance by cluster
Half the clusters tracked reported increases in production yoy.
Output in the key electronics cluster recovered strongly in March, surging 8.9 per cent after reporting a mere 0.2 per cent expansion in February.
Most segments within the cluster – semiconductors (8.2 per cent), infocomms and consumer electronics (14.1 per cent) and other electronic modules and components (1.6 per cent) – recorded growth, with only the output from computer peripherals and data storage (-2.9 per cent) shrinking.
But while electronics performance is still healthy, it is 'slightly disconcerting' that the precision engineering cluster is 'already softening' (-0.1 per cent), especially for precision modules and components, said OCBC's Ling.
This could suggest that some front-loading momentum could be subsiding, potentially due to the heightened tariff uncertainties, she said.
Ling also noted that the chemicals cluster (-6 per cent) was a 'key drag'. Output also slid for general manufacturing (-13 per cent).
The 'silver linings' were the resilient growth in transport engineering (20.2 per cent) and volatile biomedical manufacturing (17.2 per cent), she said.
EDB noted that the transport engineering's aerospace segment (30.9 per cent) was bolstered by higher production of aircraft parts and more maintenance, repair and overhaul jobs from commercial airlines.
Meanwhile, chemicals' pharmaceuticals segment (44.1 per cent) recorded higher production of biological products as well as a different mix of active pharmaceutical ingredients being manufactured compared to the previous year.
DBS' Chua flagged that while the electronics and biomedical clusters improved, they remain susceptible to downside risks from Trump's threatened levies on semiconductor and pharmaceutical imports.
As the city-state is deeply integrated into the global semiconductor supply chain, it is indirectly vulnerable to a broader US tariff-induced semiconductor downturn, he said. Singapore faces higher downside growth risks from US pharmaceutical import duties, compared to some of its Asean peers, he added.
If introduced, these targeted tariffs' impact will be significant, agreed Maybank's team, as the two sectors account for about 38 per cent of Singapore's manufacturing.