Surprise slump in biomedical sector hits factory output

FACTORY output fell unexpectedly last month for the first time since June last year, mostly due to a surprise decline in biomedical production.

Production slumped 2.5 per cent in May from the same period last year, catching out economists, who had expected growth of 2.4 per cent.

The slide would have been a mere 0.5 per cent if biomedical manufacturing were excluded, said the Economic Development Board yesterday.

Economists predict a flat year for manufacturing with few reasons to be upbeat about growth.

"There's nothing too exciting about Singapore's current growth momentum," said CIMB's Mr Song Seng Wun.

OCBC economist Selena Ling added: "It appears that the anticipated global demand recovery story is not benefiting Singapore at large yet."

Yesterday's surprise data had some economists scrambling to reassess their full-year gross domestic product (GDP) and manufacturing forecasts.

UOB economist Francis Tan noted: "Feeding the latest manufacturing numbers into our GDP forecast shows that our second- quarter GDP growth forecast of 4 per cent could potentially be downgraded to 3.1 per cent."

Mr Tan added that he has revised his full-year manufacturing forecast to 3.5 per cent from 5 per cent previously.

Yesterday's data showed that biomedical manufacturing output shrank 9.2 per cent last month after four months of expansion, noted UOB. The slide was largely due to the pharmaceuticals segment, which slumped 11.6 per cent with lower production of active ingredients.

Electronics manufacturing fell 7.5 per cent on the back of a 6.4 per cent slip in semiconductor output.

There were also declines seen in general manufacturing.

But chemicals cluster output rose 8.6 per cent on a year-on- year basis, with growth led by the petrochemicals segment, which grew 14.6 per cent, thanks to expanded capacities.

The transport engineering cluster expanded 5.6 per cent, while the precision engineering sector inched up 0.2 per cent.

"The market should brace itself for downside surprises moving forward with the electronics cluster likely to contract for the rest of the year due to falling semiconductor production," said ANZ economist Daniel Wilson.

The experts warn of an increasing "downside risk" to the export-led recovery in the second half of the year which some economists had been tipping.

The rising caution is largely due to "the return of geopolitical risks from the unfolding civil war in Iraq pushing up oil prices and pushing down consumer confidence", said CIMB's Mr Song.

alfoo@sph.com.sg