[SINGAPORE] The Republic's industrial output may have surged 12.8 per cent last month from a year ago, but this has done little to change economists' expectations of a sequential pullback in Q1 GDP of around 0.5 per cent.
Last month's strong showing in manufacturing activity - the fastest pace of growth seen in two years - was largely due to double-digit jumps in biomedical (19.3 per cent), electronics (14.8 per cent) and transport engineering (11.1 per cent) output.
Robust growth in these clusters, combined with expansion in all other segments, helped manufacturing growth accelerate sharply from January's revised year-on-year pace of 4.4 per cent (previously estimated at 3.9 per cent).
But economists say that it is "hard to draw strong conclusions" about manufacturing activity from February's industrial output numbers, since they were likely to have been flattered by base and seasonal effects.
In February last year, industrial production contracted 15.5 per cent, setting a low base for last month's data. Chinese New Year was also earlier this year than last year - a fact that would have skewed February's data, say economists.
Indeed, forecasters had expected February's rebound in manufacturing growth. The 19 economists polled by Bloomberg prior to the data release had a median growth forecast of 12.9 per cent - just 0.1 of a percentage point higher than the actual figure.
In sequential terms, manufacturing output outstripped the market's expectations to jump 6.2 per cent from January, after seasonal adjustments. The 10 economists polled by Bloomberg had a median forecast of 3.8 per cent month-on-month growth.
Excluding biomedical manufacturing, output rose 3.8 per cent month-on-month.
Economists also pointed out that February's growth was boosted by the typically volatile biomedical cluster. Said Bank of America Merrill Lynch (BAML) economist Chua Hak Bin: "On the surface things may look pretty dandy, and manufacturing looks to be holding up fairly decently. But just bear in mind that it's partly driven by some of the more volatile components . . . So it's harder to conclude that this confirms that Singapore's export recovery is on a sustained basis."
Even so, excluding the biomedical cluster, output would still have risen 11.2 per cent year-on-year, said the Singapore Economic Development Board yesterday.
Economists say that they will be looking at March and April industrial output figures more closely, since those are unlikely to be marred by the base or seasonal effects which have plagued the first two months of this year.
Said CIMB economist Song Seng Wun: "We think the (industrial production) reading will normalise to the mid-single-digit range from March onwards - unless of course you get the volatile pharmaceutical segment coming in to lift output in a big way."
Despite February's strong manufacturing output figures, economists from BAML, CIMB, Citi, Credit Suisse and UOB are expecting a marginal sequential correction to GDP in the first quarter of this year, as payback for the strong quarter-on-quarter momentum seen in Q4 last year.
Singapore's GDP grew 5.5 per cent in Q4 from a year ago, shooting past the flash estimate of 4.4 per cent to beat the market consensus forecast of 5.2 per cent growth as well. This meant a quarter-on-quarter annualised rate of 6.1 per cent growth - far better than the government's advance estimate of a 2.7 per cent contraction.
Said UOB economist Francis Tan: "We're going to see a slight pullback in Q1 GDP (quarter-on-quarter), mostly because of the strength seen in the previous quarter. I wouldn't be too concerned, though - at -0.5 per cent, the contraction will be quite minor."
Credit Suisse's Michael Wan thinks growth momentum will pick up from the second quarter onwards, "given a more buoyant EU, coupled with the US expected to bounce back in Q2 following a snow-laden start to the year".
Added Barclays economists Leong Wai Ho and Bill Diviney in a research note: "Overall, the data is consistent with firm producer confidence in Singapore, and points to expectations of a further gradual recovery in exports. We continue to expect Singapore to benefit from strengthening global demand in 2014, though there is likely to be a longer lag than in previous cycles."
Economists from ANZ, Barclays, BAML and Credit Suisse expect the Monetary Authority of Singapore to maintain its appreciation stance at its next monetary policy meeting in mid-April.