Why It Matters

Bright signs for economy with manufacturing leading the way

Manufacturing is the brightest spot in the Singapore economy this year, and the signs point to continued strong growth all year.

This is good news for the rest of the economy - with tentative signs this trade-driven pick-up is broadening out to benefit other sectors.

Factory activity rose for the 12th straight month in August, according to the purchasing managers' index (PMI), an early indicator of manufacturing activity. It logged a reading of 51.8 last month, the highest since November 2014, as electronics production surged to its best showing in nearly seven years.

A reading above 50 points to growth in the sector.

Also, the latest survey of private-sector economists conducted by the Monetary Authority of Singapore showed that forecasters expect manufacturing growth to remain robust. They expect the sector to charge ahead by 6.6 per cent this year, up from an estimate of 5 per cent in June's survey.

Manufacturing - making up a fifth of the economy - is being lifted by strong global demand for semiconductors and related equipment.

HSBC co-head of Asian economics research Frederic Neumann said in a report that while Asia is feeling a lift from the pick-up in the global electronics manufacturing cycle, it remains to be seen how long this will last and whether tightening credit conditions in China will dampen growth.

Still, the data shows that manufacturers' new orders are up, an indication "this thing has legs", Mr Neumann noted. This is good news for Singapore manufacturers and also the rest of the economy.

The nation's growth this year has been driven largely by trade-related sectors such as manufacturing. There were concerns earlier in the year that this pick-up might be short-lived and hence have limited impact on the wider economy. Now that a sustained improvement is in prospect, economists will look for signs of the recovery spilling onto other sectors, especially those depending largely on spending at home by consumers and businesses.

A version of this article appeared in the print edition of The Straits Times on September 08, 2017, with the headline 'Bright signs for economy'. Print Edition | Subscribe