SINGAPORE - Singapore's factory output continued to expand in July, though at a slower rate, thanks to the strong performance by the volatile pharmaceuticals sector, data out on Thursday (Aug 26) showed.

Manufacturing output rose 16.3 per cent year on year, marking the ninth straight month of growth.

However, growth eased from the revised 28 per cent expansion seen in June. It also fell short of the forecast of 19.9 per cent in a Bloomberg poll.

Excluding biomedical manufacturing, output increased by a smaller 5.8 per cent.

On a seasonally adjusted month-on-month basis, manufacturing output dipped 2.6 per cent.

The key electronic sector saw only a marginal 1.5 per cent year-on-year rise in output, down from the 27.4 per cent growth in June. EDB attributed this to the high production base a year ago.

Semiconductors saw production dip by 0.4 per cent, though all other segments recorded output growth.

OCBC Bank head of treasury research and strategy, Ms Selena Ling, said this could be partly to blame on a global supply crunch.

"Anecdotally, the persistent global chip shortage, partly due to global supply chain disruptions amid rising Covid-19 infections in major economies from the Delta variant, has already made an impact on selected industries like auto production," she said.

She noted that big firms in the sector like Infineon and STMicroelectronics were reported to have halted production in Malaysia, while other major chip manufacturers like NXP have also rapidly drawn down their inventories.

Both Apple and Samsung Electronics have also warned of component shortages which could affect shipments going forward.

Maybank Kim Eng economists Lee Ju Ye and Chua Hak Bin added that chip lead times - referring to the gap between ordering a semiconductor and taking delivery - rose by more than eight days, to 20.2 weeks in July compared with the previous month, according to the Susquehanna Financial Group.

"Nevertheless, as vaccination ramps up and Covid-10 restriction measures are gradually relaxed in key manufacturing and electronics centres in Asia, coupled with global chip manufacturers also ramping up capacity, the chip supply situation may resolve over time, even if short-term hiccups continue for now," Ms Ling said.

July's outperformer, biomedical manufacturing, saw output surge 86.6 per cent, as pharmaceuticals output jumped 134.9 per cent, on the back of a different mix of active pharmaceutical ingredients and higher output of biological products.

The medical technology segment expanded 17.4 per cent with higher export demand for medical devices.

The transport engineering sector also posted growth, with output expanding 33.1 per cent. The marine and offshore engineering segment rose 52.6 per cent from a low base last year due to movement restrictions at foreign worker dormitories which adversely affected production, EDB said.

The aerospace segment also grew, by 22.8 per cent from a low base of maintenance, repair and overhaul activities last year due to international travel restrictions amid the Covid-19 pandemic, it added.

Meanwhile, output from precision engineering expanded 20.3 per cent. The machinery and systems segment grew 26.8 per cent with higher production of semiconductor equipment to cater to the strong capital investment in the global semiconductor industry, EDB said.

The precision modules and components segment rose 9.2 per cent, on account of higher production of metal and plastic precision components, as well as dies, moulds, tools, jigs and fixtures, it said.

General manufacturing output also increased, by 11 per cent. The miscellaneous industries segment grew 57.2 per cent from a low base last year, when demand and production of construction-related materials were adversely affected by Covid-19, EDB noted.

But the food, beverage and tobacco and printing segments fell in output, as there was lower production of dairy products and milk powder due to weaker export demand.

The chemicals sector saw output drop by 5.6 per cent. The petroleum segment grew 28.5 per cent from the low production base a year ago due to weaker export demand amid the Covid-19 outbreak. The petrochemicals segment also saw moderated growth of 6 per cent following double-digit expansion in the past few months due in part to turnarounds in some plants, EDB said.

Conversely, the other chemicals segment contracted 3.6 per cent, while speciality chemicals shrank 25 per cent due to plant maintenance shutdowns.

UOB economist Barnabas Gan said that the low base effects from last year are expected to dissipate further in the second half of this year, projecting that full-year industrial production growth will slow to 8 per cent.

Ms Lee and Dr Chua agreed that manufacturing will likely continue moderating in August and possibly decelerate to single-digit growth in September.

"Services will likely lead the recovery in the fourth quarter with the reopening of the economy and easing of border controls," they said.