Singapore industrial production shrank by 5.4% (YoY) in Oct15

It's such a sobering picture. Headline industrial production shrank by 5.4% (YoY) in Oct15. That makes for nine consecutive months of declines. Surely, this is a big cold bucket of water over the earlier better than expected 3Q15 GDP growth figures. More importantly, this latest set of IPI numbers also provides a glimpse of what lies ahead in the coming months. 

All is not good in this regard. The global environment remains challenging. China is slowing and the US Fed is rushing to hike rates. Although the non-oil domestic exports for the same month came in with just a modest dip of 0.5% (YoY), that's mainly due to valuation effects arising from the SGD depreciation. There's no need for champagne. This latest set of IPI figures is the reality check and it hurts. 

The only silver lining is that on a month-on-month basis, production has picked up by 2.5% (MoM sa). But how sustainable will that be remains questionable given the fickle nature of external demand. Beyond the cyclical swings, the bigger concern is that the manufacturing sector has been stuck in this structural decline for a while. The manufacturing sector is in recession. It has contracted by an average of 3.7% (YoY) over the past four quarters. Its GDP share has fallen from 26% in 2004-06 to just 17% in 2013-2014. External competition, continued increased in business costs and manpower shortage are eroding the longer term prospects of the sector. 

It's time for policymakers to intensify their efforts to keep the sector afloat. Manufacturing has always been an important engine for the Singapore economy and the nation wouldn't have achieved today's success if not for the tremendous progress made in this sector. However, at the current pace of decline in the manufacturing GDP share, Singapore could well follow the path of Hong Kong eventually.