Singapore October factory output disappoints, up just 0.2%

Singapore

THE first set of industrial output data for Q4 has underscored Singapore's sluggish growth outlook. The manufacturing sector barely expanded in October, with factory output rising just 0.2 per cent on a year-on-year basis - a number private-sector economists described as "paltry". (see infographic)

Overall, industrial production was pulled up by a double-digit increase in pharmaceuticals output, which offset contractions in the electronics and transport engineering clusters.

Excluding biomedical output - which grew 22.5 per cent in October - industrial production would have declined 4.3 per cent.

Said CIMB economist Song Seng Wun: "(The Ministry of Trade and Industry) gave us a fairly downbeat assessment of Q4 on Tuesday, and this follows from that. Without the lift from drugs, we would certainly be struggling - the underlying performance is still fairly soft."

Economists polled by Bloomberg before the Economic Development Board (EDB) released the data on Wednesday had been expecting factory output to rise by a larger 0.6 per cent, following September's one per cent contraction.

Apart from the biomedical, precision engineering, and chemicals clusters - which grew 22.5 per cent, 1.3 per cent, and 2.3 per cent respectively - output of all other clusters fell.

The electronics cluster disappointed with a deeper 6.1 per cent contraction, compared to September's 2.3 per cent decline. The semiconductors, computer peripherals, and data storage segments contracted 0.5 per cent, 31.1 per cent, and 18.5 per cent respectively.

Said Barclays economist Leong Wai Ho of electronics' contraction: "The performance in electronics remains disappointing, and although we continue to expect this sector to benefit from stronger US demand - as indicated by the ISM new orders index holding close to a 10-year high - the slow pace of recovery in exports led us to downgrade our 2014 growth forecast this week by 40 basis points, to 3.1 per cent." This is in line with the official forecast of "around 3 per cent" GDP growth this year.

The worst-performing cluster was transport engineering - its output declined 8.8 per cent on lower contributions from rig building and ship conversion projects, and slow demand for aerospace engine repair jobs.

The general manufacturing cluster contracted 3.3 per cent.

Citi economist Kit Wei Zheng said that October's factory output data points to "positive but muted Q4 GDP growth", since manufacturing activity remains "tepid".

"Comparing headline industrial production figures with October seasonally adjusted NODX (non-oil domestic exports) volumes, it appears that the rise in industrial production is more a function of inventory restocking of finished products in Q4, rather than a fundamental improvement in demand."

EDB said that after adjusting for seasonal factors, industrial production grew 2.6 per cent month-on-month in October. Excluding biomedical manufacturing, output would have fallen 3.4 per cent.

The expansion was smaller than private-sector economists had earlier forecast - they had expected industrial production to rise 3.2 per cent in October from September, on a seasonally-adjusted basis.

Noting that domestic labour constraints and a weak global recovery will limit the lift for manufacturing, Bank of America Merrill Lynch economist Chua Hak Bin said: "Restructuring and strict foreign worker policies, coupled with uneven global growth, are hurting the manufacturing sector disproportionately. Manufacturing is likely to weaken in the fourth quarter following the recovery in the third quarter (1.9 per cent year-on-year) . . . We question whether further foreign worker levy hikes are necessary next year, given the fragile state of the manufacturing sector."