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Explosive electronics demand expected to propel Q1 GDP growth

March industrial output overshoots expectations; economists eye upgrade for full-year GDP numbers

Singapore manufacturers ended 2017 on a high, fuelled mainly by strong growth in electronics. But the sector's pace of expansion is showing signs of moderating after a year of breakneck growth.


SUSTAINED strong demand for electronics in the region has led to a faster-than-expected expansion in Singapore's manufacturing output - and potentially its economy.

Some economists, after seeing the strong expansion in industrial production in March, now say that the trade-reliant city-state's gross domestic product (GDP) in the first quarter is expected to have expanded at a faster rate than thought. Industrial production is closely linked to GDP.

The earlier official estimate of Q1 GDP growth stands at 2.5 per cent; economists' revised forecasts are now between 2.7 per cent to 3 per cent.

Some even expect a full-year upgrade.

"We expect Q1 2017 GDP to be upgraded to 3 per cent, as services growth will also be raised given healthy March readings," noted Chua Hak Bin, economist at Maybank Kim Eng.

"We look to upgrading our full-year GDP forecast, currently at 2.5 per cent, when the official Q1 GDP is released."

Fuller estimates of Q1 GDP growth will be released in May.

Singapore's factory output rose 10.2 per cent year-on-year in March, data from the Economic Development Board on Wednesday showed.

upward march

This was the same year-on-year rate of expansion when compared to February's expansion. Economists polled by Reuters had expected a 7.1 per cent expansion in March.

On a seasonally-adjusted month-on-month basis, output rose by 5 per cent, reversing a trend of sequential contractions seen in January and February. A Reuters poll had the median forecast at a rise of 0.9 per cent.

Only two clusters reported lower outputs in March. Transport engineering was the worst-performing cluster. Output shrank by 15.6 per cent year-on-year, dragged down by marine and offshore engineering's 30.6 per cent fall.

The general manufacturing cluster shrank by 5.1 per cent.

The star performer in March was the electronics cluster, the largest in manufacturing. It saw a 37.7 per cent year-on-year jump, as semiconductors reported a 54.6 per cent increase. DBS economist Irvin Seah noted that this follows the upswing in electronics demand as seen from indicators on the global electronics cycle.

March's stronger-than-expected industrial production data continued to give credence to a resurgent trend for Singapore's manufacturing, or even its whole economy.

The city-state struggled in the past few quarters in the face of weaker external demand. Manufacturing reported consecutive months of decline before picking up in early 2016. Then it surged ahead in late 2016.

The economy also plodded along, clocking up some quarters of sequential contraction in 2016, a spurt in Q4 last year, then a contraction again of 1.9 per cent in Q1 this year.

Now, with headline industrial production reporting eight straight months of year-on-year expansion that is largely driven by the electronics cluster's performance, economists believe that this will bode well for the manufacturing sector, or even the whole economy.

Said OCBC economist Selena Ling: "Even if the heady pace of electronics output, especially semiconductor manufacturing, moderates into the next few quarters, the manufacturing sector is still likely to be the key economic engine of growth this year."

DBS' Mr Seah even wondered if there may be a second boost to electronics' expansion. "The strong run in electronics is largely driven by consumer demand at present," he wrote. "Much will depend on companies increasing their capital expenditure in the coming months, which will then provide the cluster with a second wind."

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