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Quick take: Singapore manufacturing sector seen growing at a more gradual pace

Friday, March 24, 2017 - 15:50

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Singapore's manufacturing output rose 12.6 per cent in February compared to a year ago, driven by continued growth in the semiconductor and precision engineering space.

SINGAPORE'S manufacturing output rose 12.6 per cent in February compared to a year ago, driven by continued growth in the semiconductor and precision engineering space.

Excluding the volatile biomedical manufacturing segment, output soared 17.1 per cent.

Here are some comments:

Irvin Seah, senior economist at DBS:

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Market voices on:

"There are a few key points to note. Firstly, the electronics cluster continued to be in the driving seat, with production output having surged by 39.8 per cent year-on-year in the month. This was mainly attributed to the semiconductors segment which posted a robust growth of 63.6 per cent. In addition, this has also led to an expansion of 26.2 per cent in the precision engineering cluster. Historically, precision engineering has often benefited from upswings in the electronics industry. More importantly, this reflects an improving global electronics demand. As long as global outlook continues to improve, growth performance in the electronics and related clusters should remain buoyant.

"Secondly, overall industrial output would have been even stronger if not for the pullback in the biomedical cluster. Biomedical output shrunk by 2.6 per cent in February, arising mainly from a 8.7 per cent decline in the pharmaceutical segment. This shouldn't come as a surprise as pharmaceutical plants usually need to shut down for sterilisation and maintenance before switching to a different product mix. When that is over, production output will usually spike up and this makes for stronger biomedical growth in the following months.

"Thirdly, the drag from the transport engineering cluster is diminishing. Output from the sector declined by 9.6 per cent year-on-year, as compared to the double digit pace over the past two years. This certainly has positive implications for the overall manufacturing performance going forward given the relatively more benign drag from the offshore marine cluster.

"Last but not least, the overall manufacturing sector is undergoing a technical payback. Sequential growth has flipped from +4.3 per cent month-on-month seasonally adjusted in Q4 2016 to -4.3 per cent over Jan-Feb. While a pullback is always to be expected after a strong surge, it does highlight the existing headwinds on the external front. Besides, the volatility from the pharmaceutical industry has also contributed partially to this pullback. Beyond that, we expect manufacturing growth to be on a more gradual pace of improvement, driven mainly by steadily rising demand from the US and China."

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