Factory output growth hits seven-year high in 2017; economists see moderation this year

Singapore

MANUFACTURERS can pat themselves on the back for their stellar performance in 2017, when output grew at its strongest pace since 2010.

Overall, Singapore's industrial output rose 10.1 per cent last year from the year before, at a rate not seen since the post-recession economic recovery, when growth shot up 29.7 per cent.

Last year was particularly favourable for manufacturers as a result of a global surge in semiconductor demand, which propelled the Singapore economy to grow faster than earlier forecasts.

But December's lower-than-expected industrial production figures ended the year on a sombre note, pulled down by high base effects as well as drag from the volatile biomedical cluster.

Singapore's factory output decreased 3.9 per cent in the last month of 2017 compared to the year before, clocking its first contraction in 17 months.

Economists polled by Bloomberg had expected a 0.8 per cent expansion.

With biomedical stripped out, output would have grown 4.5 per cent, going by the latest data from the Economic Development Board.

On a seasonally adjusted month-on-month basis, output fell 2 per cent in December. Excluding biomedical, it dipped 0.7 per cent.

But economists who spoke to The Business Times were unfazed by last month's factory output contraction.

High base effects were not a surprise, given strong growth the year before.

The plunge in biomedical production - while unexpected - was also not a big concern, given its volatile nature.

DBS economist Irvin Seah said pharmaceutical companies do not follow fixed production patterns, and that the drag from the biomedical cluster can be "safely dismissed".

"It is industry-specific, and nothing to do with the broader external demand dynamics," he said.

Biomedical manufacturing was the worst performer in December, declining by 34.7 per cent compared to a year ago. For the full year, it fell 9.3 per cent from 2016's figure.

Apart from the downside surprise from biomedical, the moderation of manufacturing growth for 2018 had been predicted by economists since last year.

UOB economist Francis Tan said in a research note: "We had previously been warning that the on-year double-digit type of semiconductor growth in 2017 may no longer be a familiar sight in 2018, as the Asia-Pacific semiconductor sales have slowed quite considerably."

Electronics, a key driver of economic growth in 2017, grew at a more sedate pace of 4.2 per cent in December, supported by semiconductors and computer peripherals. This was a steep drop from November's year-on-year growth of 28.2 per cent, and 45.4 per cent in October.

For the whole of 2017, electronics grew 33.5 per cent compared to a year ago; semiconductors grew by a whopping 48.3 per cent.

Growth is expected to continue, but will ease to a more sustainable pace in 2018, said economists.

Precision engineering was the strongest performer in December, with growth of 18.2 per cent year-on-year. Boosted by semiconductor demand, total output for the cluster grew 17.8 per cent last year compared to 2016.

The chemicals cluster's output rose 14.4 per cent in December, with all segments recording output growth. It was up 6.2 per cent in 2017.

Output of general manufacturing went up 2.9 per cent in December, but its overall output for 2017 declined 1.6 per cent from a year ago.

Transport engineering's output fell 11.7 per cent in December, weighed down by the marine & offshore engineering segment, which fell 18.2 per cent. For the whole of 2017, the cluster's output was 6.9 per cent lower than in 2016.

With manufacturing growth forecast to ease into the single-digits this year, most economists read December's industrial production figures as a sign that services will soon take the lead in economic growth.

This sentiment was further bolstered by manpower data, also released on Friday, which showed improvement in labour market statistics, and could give domestic consumption a much-needed nudge.

Maybank Kim Eng economists Chua Hak Bin and Lee Ju Ye said: "Services will likely contribute to a larger proportion of growth as the recovery broadens to domestically-oriented services sectors."