Pharma boosts March factory output but economic impact may be limited: analysts

Singapore

SINGAPORE'S factory output saw a dramatic rebound in March largely due to a surge in production of active pharmaceutical ingredients (API) and biological products amid the novel coronavirus pandemic.

Total manufacturing output jumped 16.5 per cent year on year in March, more than reversing the 0.7 per cent year-on-year contraction seen in February, according to data released by the Singapore Economic Development Board (EDB) on Friday.

This came as a surprise to private-sector economists who had predicted a 4.9 per cent contraction in March, according to a Bloomberg poll.

Biomedical manufacturing grew 91.4 per cent in March compared to the same period in 2019. This was led mainly by higher production of pharmaceuticals, including APIs and biological products, which saw a whopping 126.6 per cent growth in March, compared to 5.8 per cent in February.

The medical technology segment saw more modest gains with a 6.3 per cent increase due to higher export demand for medical devices, according to EDB.

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Irvin Seah, senior economist at DBS Bank, noted that the gains were due in part to India's export ban on certain drugs, which kicked in on March 4 but was lifted in early April.

"That - to some extent - would have benefited Singapore, there must be some degree of trade diversion in Singapore's favour," Mr Seah told The Business Times.

Excluding the volatile biomedical sector, total manufacturing output remained unchanged, EDB said, noting that the Covid-19 outbreak did not have a significant impact on overall manufacturing output in March.

"More pronounced impact is likely to be seen from April 2020 due in part to the implementation of the 'circuit-breaker' measures," the agency said in a footnote on its media release.

On a seasonally adjusted month-on-month basis, manufacturing output increased 21.7 per cent in March. Without accounting for biomedical manufacturing however, output grew 2.5 per cent.

Other clusters that saw year-on-year growth in March include precision engineering at 21.2 per cent, transport engineering at 7.6 per cent and chemicals at 0.8 per cent.

In contrast, electronics output contracted by 9.2 per cent year on year, with all segments within the cluster recording declines. General manufacturing, which includes the food, beverage, tobacco and printing segments, shrank by 7.9 per cent year on year.

In a Facebook post, Trade and Industry Minister Chan Chun Sing said Singapore has made it a point over the years to diversify its manufacturing sector to remain globally competitive and provide a buffer to external shocks to the economy.

"While the numbers announced today are a bright spot we can be proud of, there is still a lot of work to be done as we grapple with the effects of Covid-19 on our businesses and workers," Mr Chan wrote.

Economists believe March's good showing is likely to lift Singapore's first-quarter gross domestic product (GDP). An official flash estimate released a month ago indicated a 2.2 per cent contraction in Q1.

Maybank economists are now expecting Q1 growth to be upgraded to -1.1 per cent; Citi, to -0.9 per cent; United Overseas Bank, to -0.8 per cent; and Barclays, to -0.7 per cent.

Even so, some are quick to point out that the spillover effect to the rest of the economy from the boost in biomedical output is quite marginal.

"The biomed surge is unlikely to have a meaningful cushion to the job market, as this sector employs over 6,000 people," Citi economists said.

Concurring, DBS's Mr Seah said the biomedical cluster has "very weak inter-industry linkages" with the rest of the economy. "The main drag on the economy is services, which accounts for two-thirds of the economy, so the boost from the industrial production figures, particularly coming from biomedical, will not be enough to pick up the slack in the economy."