Aug factory output reverses to growth but still lags forecasts

Singapore

BY most accounts, Singapore's factory output grew in August, leading some economists to suggest that macroeconomic conditions have stabilised.

Factory output grew by 0.1 per cent year-on-year last month, up from July's 3.5 per cent fall. If the output of the volatile biomedical sector is stripped out, overall growth was at a stronger 2.3 per cent.

On a seasonally adjusted month-on-month basis, manufacturing output was unchanged in August from July, when it had fallen by a surprising 3.9 per cent. Again, if biomedical manufacturing is taken out of the equation, August's month-on-month output grew 1.5 per cent.

Factory output data is closely related to the manufacturing sector's gross domestic product (GDP) numbers, and, in turn, economic performance at large.

August's industrial production data is in line with what Singapore's central bank has predicted for economic activity and core inflation, noted ANZ economist Ng Weiwen.

It is also the final macroeconomic indicator before the release of the third-quarter advance GDP estimates, due out in mid-October; the Monetary Authority of Singapore (MAS) is expected to issue its October policy decision at around the same time.

Mr Ng said: "While economic activity remains subdued, we do not see a significant deterioration in the near-term growth and inflation outlook that will justify an easing move at this point."

Although August's factory output numbers portrayed a more stabilised sector after several months of mixed signals, performance was still poorer than expected.

The median forecast from a Reuters poll of 12 economists put the headline growth at 0.6 per cent year-on-year. On a month-on-month basis, they had expected a 1.8 per cent rise.

Output of the precision engineering cluster increased 11.6 per cent on a year-on-year basis in August. On a year-to-date basis, the output of this cluster declined 1.6 per cent compared to the same period a year ago.

The electronics cluster reported a 10.8 per cent year-on-year increase in output for August. In the first eight months of the year, output grew 8.7 per cent compared to the same period last year. This cluster produces the most in manufacturing, accounting for about 27.4 per cent of all factory output.

Growth in this cluster, specifically for semiconductors, is expected to last in the months ahead, driven up by demand for Apple's new iPhone 7, said UOB in a note on Monday.

The chemicals cluster also reported growth at 1.8 per cent. This was supported by higher output in the other chemicals (15.4 per cent), petroleum (12.3 per cent) and the specialties (11.3 per cent) segments.

The transport engineering cluster's output shrank the most - 16.8 per cent; the marine and offshore engineering segment slumped the most, at 31.4 per cent. On a year-to-date basis, output fell by 18 per cent from a year ago.

The biomedical cluster dipped 8.4 per cent, as a 14.1 per cent drop in pharmaceuticals dragged down performance. In the first eight months of the year, the cluster increased output by 6.8 per cent, compared to the same period last year. General manufacturing output fell by 1.6 per cent. Cumulatively, the cluster's output fell 1.9 per cent in the year to date.