What Singapore's electronics sector tells us about Asia
Singapore’s electronics industry is a vital node in the global electronics market and is particularly exposed to the changes in the global demand for electronics. Learn why the industry’s health could be seen as a proxy for the region’s economic health.
Singapore enjoyed double-digit growth in electronics exports from the start of 2020 to the middle of last year. This was initially driven by a sharp increase in export volumes, supported by rising demand for work-from-home equipment and consumer electronics amid peak pandemic global supply chain disruptions.
The combined positive demand shock and negative supply shock resulted in a sustained increase in electronics export values, which then powered the second half of the export growth story even as growth in export volumes cooled; however, these positive trends appear to be reversing.
Singapore exports—machine and transport equipment, YoY (%)
Source: Singapore Department of Statistics, Macrobond, Manulife Investment Management, as of April 26, 2023. YoY refers to year over year.
Over the past few quarters, the dominant narrative for the industry has changed dramatically from positive demand shock + negative supply shock to negative demand shock + positive supply shock.
In a bid to take advantage of higher prices and increased profit margins, exporters ramped up production and capital expenditure at the height of the price boom. This development occurred just as central banks—especially in developed economies—raised rates to rein in demand-driven inflation.
For context, global shipments of personal computers in Q1 fell 29% from 2022, and the weakness in demand for semiconductors is expected to spread from consumers to businesses, with the global chip revenue forecast to fall by more than 11% this year.
Inventory ratio of electronics components at highs not seen in more than a decade
Source: Statistics Korea; Taiwan Directorate-General of Budget, Accounting and Statistics; Japan’s Ministry of Economy, Trade and Industry; Macrobond; Manulife Investment Management, as of April 24, 2023.
Unsurprisingly, the technology industry is reeling from the negative effects of these dynamics. End producers in Taiwan, South Korea, and Japan now hold record levels of electronics inventories. That explains why Singapore’s Purchasing Managers’ Index for the electronics sector has remained in contraction territory (below the 50-point mark) in all three key categories in March.
Singapore: PMI for the electronics sector remains in contractionary territory
Source: Singapore Institute of Purchasing and Materials Management, Macrobond, Manulife Investment Management, as of April 26, 2023. PMI refers to Purchasing Managers’ Index. A reading below 50 indicates contraction.
A development that’s expected to amplify the negative demand shock + positive supply shock trend is the strong pipeline of additional chip production capacity that’s due to come online over the next few years, which will likely coincide with rising global recession risks.
We had expected the slowdown in Asian export growth to hit the bottom around mid-2023; however, these developments suggest that electronics export growth could remain weaker for longer than we had previously anticipated and could weigh on the region’s outlook going into next year.
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