Singapore factory output sees surprise 6.7% rise but too early to call recovery

Employees are seen by their workstations at a printed circuit board assembly factory in Singapore.
Employees are seen by their workstations at a printed circuit board assembly factory in Singapore.PHOTO: REUTERS

Biomed and electronics surge, but experts caution it's too early to declare turnaround

After months of stagnation amid weak global demand, the manufacturing sector posted a surprisingly strong showing last month. However, economists said it remains to be seen if the uptick can be sustained.

Factory output jumped 6.7 per cent compared with the same month a year ago - the strongest rate of increase since 2014 and well above economists' expectations of a 1 per cent rise.

The numbers from the Singapore Economic Development Board yesterday come amid a protracted cyclical downturn in Singapore's trade-dependent economy as global growth continues to flounder.

The Monetary Authority of Singapore warned earlier this week that the economy is expected to remain sluggish next year, which means trade-related sectors will continue to struggle.

Economists said yesterday's better-than-expected data indicates that previous estimates for third- quarter economic growth will likely be revised upwards. Advance estimates had previously suggested growth would come in at just 0.6 per cent in the July to September period, the weakest rate since 2009.

But economists also warned that it is too early to tell if last month's strong manufacturing performance will be sustainable, given the still-poor global outlook.

Biomedical output - the second- biggest segment in manufacturing - surged 22.2 per cent in September compared with the same month last year, due largely to growth in the pharmaceuticals and medical technology segments.

Even after excluding biomedical output, which tends to be more volatile, overall manufacturing output rose 3.5 per cent year on year.

Electronics, which makes up about a third of manufacturing output, was also a strong performer. The cluster expanded 15.9 per cent last month compared with the same period a year ago, thanks largely to the semiconductor segment.

Despite last month's surprisingly positive data, "we would be cautious to call this a turnaround in growth", Citi economist Kit Wei Zheng said. He noted that the uptick was largely driven by the volatile biomedical cluster, which is not closely linked to the rest of the economy.

Notwithstanding encouraging signs in the electronics cluster, manufacturing "remains in the doldrums, and the recovery in broader trade-related sectors... remains fragile", he added.

It remains to be seen whether the pickup in electronics output will hold up once the boost from recent smartphone launches fades, ANZ economist Ng Weiwen said.

"I see today's strong (manufacturing figures) as an aberration, rather than a precursor of (stronger data) ahead," he added.

A version of this article appeared in the print edition of The Straits Times on October 27, 2016, with the headline 'Factory output sees surprise 6.7% rise'. Print Edition | Subscribe