Electronics powers 14.6% surge in Oct factory output

Factory production delivered another impressive showing last month, with electronics continuing to power ahead, but the pace will likely ease up a touch, say economists.

They warn that slowing semiconductor demand will be one of the factors that will be putting the brakes on this quarter, and into the new year.

Overall manufacturing output grew 14.6 per cent in October from the same month last year, the Economic Development Board said yesterday. This is slightly higher than September's industrial output of 14.4 per cent, revised from an earlier estimate of 14.6 per cent.

The official October number missed economists' estimates of 16 per cent, mainly due to a drag in the traditionally volatile biomedical sector. If the biomedical sector were excluded, manufacturing growth would have been 25.8 per cent.

Manufacturing, which makes up one-fifth of the economy, has been a key growth driver this year.

All clusters expanded last month except biomedical, which fell 24.2 per cent, and transport engineering, down 3.8 per cent.

But star performer electronics more than made up for this shortfall, surging ahead with a stellar 45.1 per cent growth year on year. This was led by semiconductors, which posted gains of 64.6 per cent - its 20th consecutive month of double-digit expansion.

Precision engineering - a beneficiary of the rise in global electronics demand - grew 23.6 per cent.

Yesterday's data comes one day after the Ministry of Trade and Industry upgraded its forecast for 2017 economic growth to 3 per cent to 3.5 per cent, up from 2 per cent to 3 per cent previously. This came from a brighter external outlook and improved demand for electronics, which helped to lift overall growth.

But despite the slew of good news, economists are not overly optimistic about the continued momentum for semiconductors.

United Overseas Bank economist Ho Woei Chen noted that the growth in semiconductors this year has been mostly cyclical.

He expects this demand to slow in 2018, adding: "That slowdown may also mean headwinds to other surrounding services such as precision engineering."

Growth is also expected to moderate towards the tail end of this year, due to high base effects kicking in.

Economists also believe China's growth next year could moderate due to a slowdown in investment.

But most industry watchers are not too worried about the easing of manufacturing growth. Services, which constitute two-thirds of the economy, are expected to do some of the heavy lifting.

"This year, growth has been very narrowly based in electronics. For 2018, we believe the drivers of growth would broaden to other domestic-oriented sectors," noted Credit Suisse economist Michael Wan.

A version of this article appeared in the print edition of The Straits Times on November 25, 2017, with the headline 'Electronics powers 14.6% surge in Oct factory output'. Print Edition | Subscribe