Factory output falls for 4th straight month

Biomedical and transport engineering clusters the main drags on production

MANUFACTURING output shrank for a fourth straight month in May as weak global demand, cost pressures and competition from regional peers continued to weigh on Singapore's factories.

Economists said the latest data, which showed output sliding 2.3 per cent last month, could pull down Singapore's overall second-quarter economic performance.

Transport engineering firms and the volatile biomedical manufacturing segment were the main drags on production last month. Output in the precision engineering, general manufacturing and electronics clusters also declined.

The transport engineering cluster fell 8.1 per cent over the same month last year, owing in part to lower levels of rig-building activities and weak demand for aerospace engine repair jobs.

The biomedical manufacturing cluster's output declined 2.6 per cent from a year earlier. Though the medical technology segment surged 34.6 per cent as demand for medical devices and supplies remained strong, this was outweighed by a 10.3 per cent decline in pharmaceuticals output.

Bank of America Merrill Lynch economist Chua Hak Bin noted that manufacturing, which makes up a fifth of Singapore's economy, contracted 5.7 per cent over April and last month. This was a much weaker showing than the first quarter's 2.5 per cent decline.

Dr Chua expects advance estimates for Singapore's growth in the second quarter to come in at 1.7 per cent, slowing significantly from the 2.6 per cent recorded in the first three months of the year.

This is because in addition to tepid manufacturing output, trade-related services are also expected to soften.

"Stronger exports to the US are not sufficient to outweigh weaker exports to China, Japan, Europe and Asean," he said.

OCBC economist Selena Ling expects a "modest recovery" in the global outlook in the second half of the year, but noted that risks remain.

"While there are tentative signs of a pickup in US consumer spending, China continues to decelerate, and the macroeconomic environment remains mixed in the near term, especially with key event risks like Greece still hanging in the balance," she said.

DBS economist Irvin Seah also pointed out "some glimmers of hope" for the manufacturing sector.

The latest Purchasing Managers' Index (PMI) - an early indicator of factory activity - recorded an expansionary reading last month, the first time it has done so this year.

This, along with the PMIs of other key markets, might suggest that the manufacturing sector could be on the mend, said Mr Seah.

"Unfortunately, one data point does not make a trend. Whether this is merely a one-off or a more sustainable upward trend remains to be seen."

A version of this article appeared in the print edition of The Straits Times on June 27, 2015, with the headline 'Factory output falls for 4th straight month'. Print Edition | Subscribe