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Manufacturing growth scales 19-month peak

Q3 GDP growth may have exceeded the 5.1% flash estimate, say economists


SINGAPORE'S industrial production for September outstripped even the most bullish of market forecasts to grow 9.3 per cent from a year ago, on the back of a 20 per cent surge in electronics output and a busy time for rig- and ship-builders.

With this surprising burst of strength from the manufacturing sector, market economists, who had earlier wondered whether the government's 5.1 per cent flash estimate for Q3 GDP growth would be revised downwards next month, now believe that the economy may have grown as much as 5.4 per cent in the third quarter.

The latest industrial production index released by the Economic Development Board (EDB) yesterday posted its biggest rise since February 2012 - this, following a revised growth of 4 per cent year-on-year in August. Excluding the volatile biomedical sector, which grew just 0.1 per cent in September, industrial output expanded by an even larger 11.3 per cent year-on-year.

The median growth forecast of 5.7 per cent from the 17 economists polled by Bloomberg before EDB's release of the numbers thus underestimated actual growth by a wide margin. Even the most bullish forecast - Credit Suisse economist Michael Wan's 7.6 per cent growth estimate - was roundly beaten.

After adjusting for seasonal factors, manufacturing output rose 3.7 per cent month-on-month, said the EDB. This too, surpassed the median sequential growth estimate of 0.5 per cent from eight economists. Excluding the biomedical cluster, output would have grown 5.8 per cent from August.

Cumulative manufacturing output for the year thus far finally notched up growth, albeit just 0.2 per cent over the first nine months of last year. Much of manufacturing's expansion in September was powered by the electronics cluster, which shook off its tepid recovery to accelerate from 5.3 per cent year-on-year growth in August to 20 per cent in September.

This was the cluster's best showing since December 2010, noted UOB economist Alvin Liew.

Semiconductors, the largest electronics segment, grew 19.3 per cent year-on-year "on the back of improved export demand", the EDB said.

But Barclays economist Joey Chew found the sharp increase "mysterious", given that Singapore's electronics exports have experienced a fresh bout of weakness over the past three months. "Compounding the mystery, it was computer peripherals that did particularly well, growing 75.6 per cent. This is a relatively low value-added IT industry that has been in structural decline for some time now in Singapore, given rising costs and poor computer sales globally," she said.

Even so, electronics was not the sole reason for the improved manufacturing performance in September. "Most of the other clusters are experiencing a rebound simultaneously, broadening the growth base," said ANZ economist Daniel Wilson, who added that these sources of growth are also more durable.

The transport engineering cluster, another strong contributor, grew 14.4 per cent from a year ago. This was led by the marine-and-offshore engineering segment, which grew 17.7 per cent due to more activity in the rig-building and ship-building industries.

The aerospace segment grew 16.4 per cent, thanks to greater demand for aircraft repair jobs from the US and the Asia-Pacific, the EDB said.

Strong regional demand for chemicals and specialties output, and a bounce off a low base for the petroleum segment, drove the chemicals cluster to grow 5.8 per cent year-on-year. This cluster may be boosted over the next few months from ExxonMobil's new petrochemical cracker, said Mr Wan.

Factories churning out more construction supplies - concrete and cement products, metal doors, windows and grilles, metal tanks and containers - helped to raise the general manufacturing cluster's output by 2 per cent.

Biomedical manufacturing, usually responsible for swings in production, grew a marginal 0.1 per cent year-on-year; the 0.8 per cent growth in pharmaceutical output was offset by a 3.2 per cent drop in medical technology production.

The only cluster that remained in contraction was precision engineering. Its output fell 0.8 per cent from a year ago, hit by weak demand for semiconductor-related equipment and mechanical engineering work.

Though the positive set of numbers comes amid an improving external environment, Citi's economists cautioned against "extrapolating the September outperformance into the months ahead", given that uncertainty still abounds.

Electronics, for one, is unlikely to sustain September's pace of growth through Q4, says Mr Wan, despite his bullish forecast.

And, in the view of Barclays' Ms Chew, the data for Q4 so far suggests that "a firm global recovery is more likely a 2014 story" too.

"Global manufacturing confidence likely flattened in October, based on flash PMI readings from the US, the euro area and China. The acceleration in growth momentum in Q3 appears to have stalled amid heightened uncertainty over the US fiscal and debt situation," she said.