Factory growth cools in August but beats forecast

Singapore's factory growth slowed again last month, with economists expecting the moderation to continue amid supply disruption and cooling external demand.

Manufacturing output expanded 11.2 per cent last month from a year ago, down from a revised 16.4 per cent increase in July, on the back of a drop in biomedical production, according to data out yesterday.

Still, the performance marked a 10th straight month of year-on-year growth and beat the 8.2 per cent increase forecast by analysts in a Bloomberg poll.

Excluding biomedical manufacturing, output increased 13.6 per cent last month. The electronics sector saw output expand by 15.4 per cent. Apart from computer peripherals and data storage, all segments recorded output growth.

Notably, the semiconductors segment grew 16.8 per cent, supported by demand from 5G markets, after eking out growth of just 1.4 per cent in July.

But experts are not very optimistic on the chip production outlook. Ms Selena Ling, OCBC Bank's head of treasury research and strategy, cited reports of shortages due to factories in Malaysia and Vietnam being shut because of Covid-19 outbreaks. She said: "I'm not sure the global chip shortage issue has been resolved. It probably is still something to watch."

Maybank Kim Eng economists Chua Hak Bin and Lee Ju Ye added: "Production is already operating at near full capacity. Fresh investments - from the likes of Micron, Infineon, STMicroelectronics and GlobalFoundries - will expand chip manufacturing capacity but this will likely materialise in 2022 at the earliest."

They added that chip lead times - the gap between ordering a semiconductor and taking delivery - worsened to 21 weeks last month, up by six days from July, according to Susquehanna Financial.

Meanwhile, the volatile biomedical manufacturing sector saw its output fall 0.6 per cent. The medical technology segment rose 8.2 per cent on the back of higher export demand for devices, but pharmaceuticals declined 3.4 per cent.

All other sectors posted year-on-year growth last month. The transport engineering cluster saw expanded output of 23.5 per cent, the marine and offshore engineering segment rose 36.9 per cent, while the aerospace segment increased output by 22 per cent.

The Economic Development Board said: "The levels of activity in the shipyards and aerospace firms had increased from a low base last year when new orders were impacted by the weak global oil and gas market and international travel restrictions."

Precision engineering output grew 22.9 per cent, largely owing to the machinery and systems segment, which grew 33.1 per cent with the higher output of semiconductor and industrial process equipment.

Meanwhile, general manufacturing output climbed 6.2 per cent, with the miscellaneous industries segment growing 33.2 per cent from a low base last year, when demand for construction-related materials was affected by Covid-19.

The food, beverage and tobacco, and printing segments dropped, with lower production of milk powder due to weaker export demand.

Chemicals output edged up by 0.4 per cent. The petroleum segment recorded an output growth of 22.1 per cent from the low production base a year ago due to lower export demand. But the specialities, petrochemicals and other chemicals segments contracted slightly. In particular, petrochemicals recorded lower production due to plant maintenance shutdowns.

Dr Chua and Ms Lee said they expect manufacturing growth to continue moderating for the rest of the year as high-base effects kick in for this month, especially with pharmaceuticals and semiconductors.

Ms Ling added that external demand may also have plateaued, with the growth momentum peaking in the United States and China.

But, she said: "With the first eight months' output growth already at 14.3 per cent year on year, even if the remaining four months moderate, full-year growth should still be fairly healthy."