Growth in Singapore's factory output hit seven-year high in 2017

Manufacturers can pat themselves on the back for their stellar performance last year, with output growing at 10.1 per cent, the strongest pace since 2010.

But December's lower-than-expected industrial output figures added a sombre note, pulled down by high base effects and drag from the volatile biomedical cluster.

Singapore's factory output decreased 3.9 per cent last month compared with a year earlier - its first contraction in 17 months.

It also fell short of economist expectations of a 0.8 per cent expansion, according to a Bloomberg poll. Excluding the biomedical sector, output would have grown 4.5 per cent, according to the latest data by the Economic Development Board.

On a seasonally adjusted month-on-month basis, output fell 2 per cent last month. If biomedical were excluded, it dipped 0.7 per cent.

Overall, Singapore's industrial output rose 10.1 per cent last year compared with a year earlier - a pace not seen since 2010 during the post-recession economic recovery, when growth shot up 29.7 per cent.

A global surge in semiconductor demand rendered 2017 a particularly favourable year for manufacturers, with the Singapore economy doing better than forecast.

While December's factory output contraction appeared alarming, economists were not fazed.

High base effects which had kicked in were not a surprise, thanks to strong growth a year ago. The unexpected fall in biomedical output was also not a big concern, given the sector's volatile nature.

DBS economist Irvin Seah said pharmaceutical firms do not follow fixed production patterns, and that the drag from the biomedical cluster can be "safely dismissed".

Biomedical manufacturing was the worst performer last month, declining 34.7 per cent compared with a year earlier. For the full year, it fell 9.3 per cent compared with 2016.

The downside surprise from biomedical aside, economists have been predicting since last year that manufacturing growth would moderate. "We had previously been warning that the on-year double-digit type of semiconductor growth in 2017 may no longer be a familiar sight in 2018, as the Asia-Pacific semiconductors sales have slowed quite considerably," United Overseas Bank economist Francis Tan wrote in a research note.

Electronics - a key driver of growth last year - grew at a more sedate 4.2 per cent in December, supported by semiconductors and computer peripherals. This was a steep drop from November's year-on-year growth of 28.2 per cent, and October's 45.4 per cent.

For the whole of 2017, electronics grew 33.5 per cent compared with the year before, while semiconductors grew a whopping 48.3 per cent.

With manufacturing expected to chalk up only single-digit growth this year, most economists see December's industrial production figures as a sign that services will soon take the lead in economic growth.

This sentiment was further bolstered by manpower data released yesterday showing improved labour market statistics. This could give domestic consumption a much-needed nudge.

"Services will likely contribute to a larger proportion of growth as the recovery broadens to domestically oriented service sectors," said Maybank Kim Eng economists Chua Hak Bin and Lee Ju Ye.

A version of this article appeared in the print edition of The Straits Times on January 27, 2018, with the headline 'Growth in Singapore's factory output hit seven-year high in 2017'. Print Edition | Subscribe