Factory activity rose for the fourth month in December, raising hopes of a manufacturing rebound after more than a year of contraction.
The Purchasing Managers' Index (PMI), an early indicator of manufacturing activity, posted a reading of 50.6 last month - the highest in two years, up from November's 50.2 reading.
A reading below 50 indicates contraction, while one above 50 points to growth.
The improved reading came on the back of higher factory output, inventory holding, new orders and exports, said the Singapore Institute of Purchasing and Materials Management, which compiles the PMI.
"The manufacturing employment index also recorded a reading towards a moderation level, and this bodes well, considering the index has posted 25 months of contractions," stated the report yesterday.
The electronics cluster PMI posted a reading of 51.2 last month, up from November's 50.5 reading.
The reading was the highest since October 2015, noted OCBC economist Selena Ling: "Demand for OLED (organic light-emitting diode) displays, dual-lens cameras, fingerprint technology and touch screens could remain key drivers this year."
Electronics is the largest manufacturing segment here, accounting for about 27 per cent of factory output.
The brighter PMI data dovetails with the stronger-than-expected official growth estimates for the economy, which were also released yesterday. They showed expansion of 1.8 per cent in the three months to Dec 31 over the same quarter in 2015, helped mainly by an unexpected bounce in factory activity.
The manufacturing sector grew 6.5 per cent in the fourth quarter from the same period in 2015, driven by higher electronics and biomedical output.
The offshore and marine engineering sector is also expected to have contracted at a slower pace in the fourth quarter.
Ms Ling said: "The tide is gradually turning this year, with the long- awaited domestic manufacturing recovery finally taking root."
December industrial production figures will be made known only on Jan 26, but official estimates point to the manufacturing sector growing 2.3 per cent last year, reversing the 5.2 per cent contraction in 2015.
Some manufacturers, however, are less certain that the rebound is here. Mr Mok Hon Yong, chief strategy officer at Onn Wah Tech, said the sector typically undergoes a late surge towards the end of the year, before a lull the next quarter.
Singapore Manufacturing Federation president Douglas Foo said: "Overall, general sentiment is moving upwards, and demand is coming back. We don't expect to see a big spike though."
Nevertheless, Singapore Semiconductor Industry Association president C.K. Tan expects to see "pockets of demand" lifting output next year - "especially in consumer electronics, industrial electronics and selective smart products going into automotives."