Revived manufacturing a sign of better times to come?

A general view of Tanjong Pagar container terminal is seen in Singapore on March 17, 2017.
A general view of Tanjong Pagar container terminal is seen in Singapore on March 17, 2017. PHOTO: AFP

Some economists optimistic but others caution that risks remain

The outlook for Singapore's economy is brightening on the back of export-led growth in the resurgent manufacturing sector.

Companies say sales have been picking up and some economists are optimistic that the uptick in activity will spill over to the rest of the economy and, eventually, the labour market.

But others caution that risks remain - for instance, rising protectionist sentiment worldwide could threaten the nascent trade recovery and weigh on sentiment.

Manufacturing, which makes up one-fifth of the economy, is benefiting from a more sanguine global outlook and strong demand for electronics, especially semiconductors.

Factory output recorded another month of stronger-than-expected growth in February, expanding 12.6 per cent and beating economists' expectations of a 10 per cent rise.

This, in turn, lifted exports and overall economic growth numbers.

CEI Contract Manufacturing managing director Tan Ka Huat said the company is seeing good growth in the semiconductor segment.


What started out as a narrow manufacturing and trade-led recovery has broadened and this should show up in the first-quarter numbers.

DR CHUA HAK BIN, Maybank Kim Eng economist.

It makes industrial and laboratory equipment for the medical technology and life science sectors, among others.

This growth comes on the back of strong demand from China, which is "consuming a lot of semicon components", Mr Tan said, adding that sales of industrial equipment to the precision engineering sector have also held up well.

"The question is whether or not it is sustainable and how long will it last," he said.

Maybank Kim Eng economist Chua Hak Bin said the export-led recovery in manufacturing has broadened out into the services sector, which makes up two-thirds of the economy.

Growth in non-oil re-exports - a proxy for wholesale trade services - turned positive in recent months, while bank loan growth numbers have also picked up, a sign that finance and insurance services are doing better, Dr Chua noted.

A rise in property market transactions helped boost performance of the business services segment in the first quarter, he added.

Demand for new private homes recorded a third straight strong month in February as developers sold 977 units - a hefty jump from the 382 units sold in January.

"What started out as a narrow manufacturing and trade-led recovery has broadened and this should show up in the first-quarter numbers," said Dr Chua, who has tipped economic growth of 2.8 per cent for the first three months of this year.

It remains to be seen whether this momentum will persist, said CIMB Private Bank economist Song Seng Wun.

US President Donald Trump's maiden summit with China's President Xi Jinping last week should shed some light on the direction of US-China relations and, by extension, the outlook for global trade and investment, Mr Song noted.

Other events to watch include the upcoming French presidential elections, as the results could fuel the rising tide of protectionist sentiment globally.

"All these could still affect sentiment but, at this moment, it looks like we're seeing a synchronised global recovery," he said.

But stronger economic growth is not yet translating into more jobs. The labour market in 2016 went through its roughest patch in years - unemployment rose, and more people took longer to find work.

Last year's 3 per cent resident unemployment rate was the highest since 2010.

"The labour market tends to be a lagging indicator - companies take time to decide to hire or lay off people," said Dr Chua, who expects job numbers to pick up this year.

In addition, not all industries are benefiting from the uptick in economic activity. Mr Song said externally-oriented sectors are doing better than industries driven largely by domestic demand, such as construction and retail.

Mr John Kong, managing director of building supplies firm M Metal, said the Government's move to bring forward some infrastructure projects and give the construction sector a shot in the arm "has been helpful".

However, tender prices for many projects "are almost at cost", even as prices of raw materials continue to climb. "Steel prices are moving up very quickly and have gone up 20 to 25 per cent since September," he noted, adding that this eats into companies' profit margins.

"Are there more projects coming in? Yes, but there is also intense competition... My concern is that in the coming months contractors operating on the margin will not be able to survive."

A version of this article appeared in the print edition of The Straits Times on April 10, 2017, with the headline 'Revived manufacturing a sign of better times to come?'. Print Edition | Subscribe