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Electronics surge expected to continue in 2018; global outlook rosy

Manufacturing's stellar showing prompts some economists to upgrade their forecasts for Singapore's economic growth this year and next

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Infineon's Kallang Way facility. Strong global demand for electronics - in particular, semiconductors - has given Singapore's manufacturing sector a shot in the arm since late-2016.

Singapore

ELECTRONICS manufacturers in Singapore are looking to another strong year in 2018, after a slew of new product launches - including the iPhone X - helped lift growth in the sector this year.

Manufacturing, which makes up a fifth of the Singapore economy, has turned in an outstanding report card, prompting some economists to upgrade their growth forecasts ahead of official third-quarter economic growth numbers out next week.

But some analysts have warned that the breakneck pace of growth in factory output could begin to cool, even as segments related to oil and gas continue to struggle.

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Strong global demand for electronics - in particular, semiconductors - has given Singapore's manufacturing sector a shot in the arm since late-2016.

Factory output for the July to September quarter surged 18.5 per cent this year over the same period last year, higher than advance estimates of 15.5 per cent previously forecast by the Trade and Industry Ministry (MTI).

Finalised third-quarter economic growth data is due out next week.

Allen Ang, group managing director of Aldon Technologies, said the slew of new electronics products released in recent months helped spur a 15 per cent uptick in the company's business in the first half of this year, compared with the corresponding period a year earlier.

"Our market is related to the end- customer releasing new products and technologies. The third quarter was when all the new products, such as the iPhone X, came out," he noted.

The company refurbishes parts for flat panel and semiconductor makers.

Activity has slowed slightly in this half of the year from the first six months, Mr Ang said, but he expects sales to remain robust going into 2018.

"The production cycle of new technologies will continue because they are brand new and have just been pushed into the market," he noted.

Manufacturing's stellar showing has prompted some economists to upgrade their forecasts for Singapore's economic growth this year.

DBS senior economist Irvin Seah said in a report out on Wednesday that he now expects the economy to expand 3.2 per cent this year from a previous estimate of 2.8 per cent - due in large part to manufacturing's standout performance and a steadily-improving global outlook.

Official forecasts tip growth of 2 per cent to 3 per cent for 2017, with the final figure expected to come in at the upper end of this range.

Mr Seah noted that other sectors besides manufacturing - including services, which makes up two-thirds of the economy - are also showing signs of picking up.

"The improvement in the real economy is expected to broaden steadily to the rest of the economy in the coming quarters," he said.

"The manufacturing sector, which has been leading this turnaround since the fourth quarter of 2016, is expected to remain in expansion mode, albeit at a marginally slower pace."

Mr Seah has also upgraded his forecast for full-year economic growth in 2018, from 2.5 per cent to 3 per cent.

Still, amid this brighter outlook, manufacturers continue to face perennial challenges like rising business costs, as well as disruption from emerging technologies related to Industry 4.0 - the trend of automation and data exchange on factory floors.

Johnny Mok, general manager of electronic manufacturing services provider Add-Plus, said the company expects revenue to be 3 to 5 per cent higher this year than last year.

However, costs are also rising. In addition to labour and rental, the company is also grappling with higher expenses on materials. This is partly because lead times for some components have increased in response to stronger demand, Mr Mok said.

"Still, the overall result is better than last year and we expect demand to hold up going into the first three months of 2018," he added.

There could be some bumps in the road ahead for manufacturers, however.

UOB economist Francis Tan has pointed out that growth remains uneven across manufacturing clusters and has been "overly reliant on the cyclical increase in the demand for semiconductors and its surrounding services".

Mr Tan believes "the double-digit growth for semiconductor production may slow into single digits as we proceed towards the end of the year and into 2018, due to base effects and . . . slower capital expenditure growth expected in China".

But Aldon Technologies' Mr Ang remains optimistic, noting that business is expected to stay robust across a broad range of clusters, including the semiconductor and automobile segments.

"I expect next year to be slightly better than the second half of this year. We are preparing our resources and raw materials accordingly," he said.

READ MORE: Businesses see GDP growth racing past official forecasts

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