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Diverging growth trends in the electronics and precision engineering clusters

10 August 2011

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The electronics and precision engineering clusters form an integral part of Singapore’s manufacturing sector. Together, they accounted for 44 per cent of manufacturing output and 41 per cent of manufacturing employment in 2010 [Exhibit 1]. In the same year, the clusters attracted $6.3 billion of fixed asset investments and $2.4 billion of total business spending [Exhibit 2].

The performance of the precision engineering cluster has tended to track that of the electronics cluster because of significant economic linkages between the two [Exhibit 3]. For instance, companies in the precision modules & components segment of the precision engineering cluster support the production of hard disks in the electronics cluster. Similarly, semiconductor equipment used by electronics firms to manufacture semiconductor chips is produced by firms in the machinery & systems segment of the precision engineering cluster. Indeed, based on the 2005 Input-Output tables, nearly a fifth of the output of the precision engineering cluster that was sold to domestic industries in 2005 went to the electronics cluster.

Recently, the precision engineering cluster has outperformed the electronics cluster

Reflecting these close linkages, the quarterly year-on-year growth rates of the electronics and precision engineering clusters were highly correlated (0.93) between 2000 and 2009. However, since the second half of 2010, the precision engineering cluster has outperformed the electronics cluster significantly [Exhibit 3]. In the second half of 2010, growth of the precision engineering cluster (39 per cent year-on-year) was almost double that of the electronics cluster (20 per cent) [Exhibit 4]. Their growth rates diverged even more in the first half of 2011, with the precision engineering cluster growing by 32 percent year-on-year compared to the 1.7 per cent growth in the electronics cluster. Two factors may account for this divergence.

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