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SINGAPORE ECONOMY

Industrial output dips a surprise 0.2% in September

The contraction confounded economists' expectations of 3.5% growth for the month

Singapore

SINGAPORE'S manufacturing output took a surprise fall in September, shrinking 0.2 per cent year-on-year in the first contraction since December 2017, preliminary estimates from the Singapore Economic Development Board showed on Friday. Excluding the volatile biomedical manufacturing cluster, output grew 1.9 per cent.

After three straight months of slowing growth, September's contraction nonetheless confounded economists' expectations of 3.5 per cent growth for the month, after August's revised growth figure of 3.7 per cent.

Economists had predicted that industrial production would slow further in the third quarter of 2018, but few had expected contraction.

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"The two main pillars of Singapore manufacturing - electronics and biomedical - failed to perform in September, while a decline in general manufacturing cluster and surprise chemical cluster contraction added to the downside," summed up UOB economist Alvin Liew.

On a seasonally adjusted month-on-month basis, manufacturing output saw the third month of decline in September, down 4.9 per cent and marking an acceleration from August's 2.2 per cent fall. Excluding biomedical manufacturing, however, the fall was 2.4 per cent, an improvement from August's 3 per cent slide.

Electronics, formerly a major driver of growth, saw output fall 5.5 per cent year-on-year in September. Mr Liew noted that semiconductors, "the main support for the electronics cluster", ended a 30-month growth streak with a 3.9 per cent fall.

Maybank Kim Eng economists Chua Hak Bin and Lee Ju Ye attributed electronics' poor performance to the tech cycle losing steam and the US-China trade war disrupting the electronics supply chain, with key North-east Asian economies such as South Korea and Taiwan also seeing a slowdown in the purchasing managers' index - a measure of industrial sentiment - and exports.

All electronics segments recorded lower production apart from infocomms and consumer electronics. Cumulatively, the cluster's output for the first nine months was still up 10.8 per cent from the year-ago period.

The best performer was transport engineering, with output rising 39.4 per cent year-on-year, a big jump from August's 5 per cent growth. Contributing to this was a 71.4 per cent expansion in marine and offshore engineering and a 23.6 per cent growth in aerospace, though the land transport segment declined 17.6 per cent.

Precision engineering output grew at a slower 4.1 per cent compared to August's 5.8 per cent, led by a 13.8 per cent expansion in precision modules and components. Machinery and systems fell 2.1 per cent.

Besides electronics, clusters which saw production fall included general manufacturing, down 2.7 per cent.

Chemicals output fell 7.1 per cent. Although the specialities segment grew 7.8 per cent with higher production of industrial gases and mineral oil additives, the other chemical segments declined. Petrochemicals and petroleum contracted 14.3 per cent and 15.7 per cent respectively due to maintenance shutdowns. The other chemicals segment fell 16.7 per cent with lower output in fragrances.

Biomedical manufacturing was the weakest cluster with output down 9.1 per cent, comprising a 5.8 per cent fall in medical technology and an 11.1 per cent fall in pharmaceuticals.

OCBC economist Selena Ling flagged the weakness in pharmaceuticals as worrying, "especially since pharmaceuticals had been providing some buffer to mitigate the electronics slowdown in recent months".

She expects manufacturing growth to ease further in the fourth quarter to about 3.4 per cent year-on-year, but adds: "This does not detract from our baseline scenario that full-year 2018 growth of 3.3 per cent is likely still achievable."

UOB's Mr Liew similarly sees a slowdown for the rest of the year.

The poor manufacturing numbers might take the final Q3 GDP growth figure down to 2.4 per cent, from the 2.6 per cent advance estimate, said Maybank's Dr Chua and Ms Lee.

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