Factory output defies expectations to grow 11.1% in May

Semiconductor production posted robust growth of 26.9 per cent, fuelling expansion in the electronics sector. The volatile biomedical sector also contributed to growth, expanding 17.7 per cent last month, up from 8.2 per cent in April.
Semiconductor production posted robust growth of 26.9 per cent, fuelling expansion in the electronics sector. The volatile biomedical sector also contributed to growth, expanding 17.7 per cent last month, up from 8.2 per cent in April.LIANHE ZAOBAO FILE PHOTO

But experts say strong performance unlikely to last amid trade tensions and easing demand

Singapore's factory output continued to outperform last month, defying expectations of a slowdown in manufacturing.

But economists say this strong showing is unlikely to last, as demand eases and global trade tensions take their toll.

There also appears to be a divergence between rising electronics production and shrinking exports in recent months.

Manufacturing growth was widely expected to moderate this year from last year's high base.

The sector, which makes up a fifth of the economy, was a key growth driver last year, buoyed by strong global demand for electronic gadgets.

But this strong showing showed no sign of easing last month. Output rose 11.1 per cent from the same month a year earlier, beating April's 9.1 per cent rise and also blowing past economists' expectations of a 10 per cent increase.

DBS senior economist Irvin Seah said these numbers are likely to be unsustainable in the coming months as the purchasing managers' index - an indicator of sentiment in the sector - for key markets is moving lower, while global semiconductor billings and shipments are also easing.

Electronics - which makes up a third of Singapore's manufacturing output - expanded 17.1 per cent, led by semiconductor production, which posted robust growth of 26.9 per cent. This was the 27th straight month of expansion in electronics output.

Electronics - which makes up a third of Singapore's manufacturing output - expanded 17.1 per cent, led by semiconductor production, which posted robust growth of 26.9 per cent.

This was the 27th straight month of expansion in electronics output.

The volatile biomedical sector was also a key contributor to growth, expanding 17.7 per cent last month, up from 8.2 per cent in April.

If biomedical manufacturing were excluded, overall manufacturing output would have grown 9.8 per cent year-on-year.

Other segments including chemicals, general manufacturing and transport engineering also expanded last month, according to data from the Economic Development Board yesterday.

But growth in the precision engineering cluster - whose performance is typically tied closely to electronics - was almost flat at 0.8 per cent.

Maybank Kim Eng economists Chua Hak Bin and Lee Ju Ye suggested that the divergence in electronics exports and production might be explained by orders booked in Singapore but produced and shipped from abroad.

Another possible explanation is that firms are building up inventories in anticipation of higher future demand, they added. "The risk is that future demand could fall short of expectations, leading to an eventual sharp correction."

A version of this article appeared in the print edition of The Straits Times on June 27, 2018, with the headline 'Factory output defies expectations to grow 11.1% in May'. Print Edition | Subscribe