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Manufacturing output back on growth path

June data seen leading to an upgrade in official estimates for Q2 GDP growth
Saturday, July 26, 2014 - 06:00

Singapore

FACTORY output staged a turnaround last month from May's negative performance, albeit expanding by just 0.4 per cent.

But the latest manufacturing numbers may still lead to an upgrade in the official estimates of the second quarter's GDP growth.

For the remaining half of the year, the economic picture appears less upbeat as restructuring stays the course.

While the Economic Development Board's industrial production index for June released yesterday showed last month's manufacturing output rose 0.4 per cent over a year ago, it was meagre and came from a low base. Still, June's industrial production index was better-than-expected. The market was looking at another decline, tipping a 0.9 per cent dip.

And June's index came with upward revisions in the index for April and May: from +5.3 to +5.9 per cent for April; and from -2.5 to -1.9 per cent for May.

Bank of America Merrill Lynch economist Chua Hak Bin said this means the manufacturing sector expanded 1.5 per cent in Q2, exceeding the government's early estimate of only 0.2 per cent.

Along with Citigroup's Kit Wei Zheng, he sees Q2's GDP growth upgraded from the initial official estimate of 2.1 per cent on-year to 2.3-2.4 per cent, though it's still a marked slowdown against the 4.7 per cent growth posted in Q1.

Mr Kit added that Q2's quarter on quarter GDP growth, which slipped by a seasonally adjusted annual rate of 0.8 per cent, could turn out to be a growth of 0.3 per cent.

Month on month, June's factory output fell a seasonally-adjusted 0.1 per cent, easing from the sharp 5.7 per cent tumble in May. Excluding the biomedical industry, output dipped 0.2 per cent last month.

Minus biomedical, overall factory output fell just 0.1 per cent on-year.

The biomedical cluster, which has the second biggest weightage of 17.7 per cent in the industrial production index, reversed a 9.1 per cent decline in May to inch up 1.6 per cent last month. This was supported by the medical technology segment, which rose 11 per cent.

But the pharmaceuticals segment slipped 0.3 per cent.

For the first half of the year, biomedical manufacturing output jumped 9.5 per cent over a year ago.

Except for transport engineering and electronics, the rest of the clusters - biomedical, chemicals, precision engineering and general manufacturing posted growth in June.

Electronics, which has the biggest weightage of 33.4 per cent in the industrial production index, continued to fall for a third straight month, as flagged by EDB in April when it said a "one-off" and "firm-specific factor" will weigh down the semiconductors segment for the rest of the year.

Electronics output slipped 4.8 per cent on-year last month, following a 4.0 per cent and 5.5 per cent drop in May and April, respectively. Computer peripherals and electronic data storage also contributed to the decline.

For the first six months of the year, electronics output growth remained positive at 2.3 per cent.

The chemicals cluster posted the biggest jump in June, 10.5 per cent, on the back of a 23.2 per cent increase in the petrochemicals segment. It expanded 9.2 per cent in May and 8.5 per cent in the first six months.

Precision engineering bounced back from a 1.1 per cent fall in May to post a 4.8 per cent growth. For the first six months, it grew 3.7 per cent.

Overall, factory output rose 5.5 per cent in the first half of the year, but growth in the rest of the year will be "trying", according to Francis Tan and Jimmy Koh of UOB Bank.

Both of them and ANZ's daniel Wilson and Glenn Maguire feel that a low base, weaker electronics output and supply constraints due to economic restructuring will combine to give factory output growth a tough time in the second half.