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Updated quick takes: Stronger April factory output bodes well for Singapore's Q2 GDP growth

Thursday, May 26, 2016 - 16:24
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SINGAPORE'S industrial production in April expanded 2.9 per cent from a year ago, beating market expectations of a 0.2 per cent fall.

SINGAPORE'S industrial production in April expanded 2.9 per cent from a year ago, beating market expectations of a 0.2 per cent fall.

Here are some comments from economists:

Francis Tan, UOB economist:

"The key driver for April's manufacturing activity was again due to a strong uptick in the output from the biomedical manufacturing cluster. Indeed, excluding the contributions of the biomedical manufacturing cluster, IP (industrial production) fell 0.1 per cent year-on-year (yoy).

"The two clusters that expanded at a double-digit pace were the biomedical manufacturing and electronics cluster. That said, the manufacturing sector is not fully out of the pit-hole as several other clusters remain in a contraction mode.

"The better-than-expected April IP numbers may point to green shoots for Singapore's manufacturers in the coming months, and reverse the contractionary trend seen over the past 18 months.

"Going forward, the low base effects from a weak IP last year, together with expectations of the continued economic recovery in the US, may provide a boost to the on-year manufacturing growth numbers. We maintain our 2016 industrial production forecast of a 2.5 per cent growth on the back of the reasons above."

Kit Wei Zheng, Citi Research economist:

"Today's data suggests that the improvement in growth momentum that started in Mar likely extended into Apr, and is also consistent with sequential improvements in other indicators such as re-exports, home sales and sea-cargo handled.

"Nonetheless, sustainability remains in question. First, once volatile pharma exports are excluded, the rebound in IP has run significantly ahead of NODX (non-oil domestic exports) in sequential terms, and the associated buildup of inventories (evident in the 5.1-percentage-point contribution to Q1 2016 GDP) risks a sharp pullback in production in subsequent quarters if demand does not recover.

"Second, while manufacturing and trade related services saw a better start in Q2, we remain concerned over the outlook for non-tradable services, such as retail, on dimmer private consumption prospects as the job market softens, while tradable services remains at risk if regional demand does not recover.

"Thus, while April data suggests a strong start to Q2, weakness in leading indicators provides ample reasons to be cautious. Should subsequent data disappointments threaten what we suspect are MAS's (Monetary Authority of Singapore) implicit expectations of 1.6-1.7 per cent growth for 2016, downward re-centring in Oct is possible in our view."