Singapore factory output eases again in July, posting 6% growth in line with expectations

SINGAPORE'S factory output matched economist forecasts with easing growth in July, even as pharmaceuticals continued to support industrial production.

The manufacturing sector logged an expansion of 6 per cent on the previous year, lower than June's revised figure of 8 per cent growth, according to Economic Development Board (EDB) data released on Friday.

Excluding biomedical manufacturing, industrial production was up by 5.1 per cent year on year.

The sector's growth was largely broad-based, with general manufacturing the only cluster to report a contraction with a year-on-year dip of 0.6 per cent.

The biomedical cluster notched a 10.1 per cent increase in output, down from 13.1 per cent the previous month. Its outsized contribution was fuelled by the 14.1 per cent expansion in pharmaceuticals, even as the medical technology segment shrank again, by 1.2 per cent.

United Overseas Bank senior economist Alvin Liew said: "The biomedical manufacturing cluster defied our earlier concerns about the potentially negative high base effect as it registered a fourth straight month of growth...  The next month, August, will be a big test for this cluster as it will face a significantly high base in the same period last year."

Chemicals also raced ahead of the pack, with the cluster posting an increase of 7.4 per cent in production - up from 1.7 per cent in June - especially on growth in petrochemicals and other chemicals. "On the other hand, petroleum throughput fell 3.6 per cent due to plant maintenance shutdown," the EDB noted.

But the electronics cluster continued to lose steam, with a 5.4 per cent expansion in July, slowing down from the 7.9 per cent growth in June. The increase in manufacturing output was led by the other electronic modules and components segment, followed by semiconductors, then infocomms and consumer electronics.

Selena Ling, head of treasury research and strategy at OCBC Bank, noted that electronics growth was at its most sluggish pace since February 2016.

"Electronics output growth has softened from strong double-digit year-on-year growth for the January-to-May period to single-digit growth in recent months," she said, citing also the performance of precision engineering. "This points to a potential further deceleration in electronics cluster ahead."

Meanwhile, transport engineering saw output rise by 9.6 per cent, with the aerospace segment's output surging by 23.5 per cent on the higher volume of engine repair and maintenance work from commercial airlines. The recovery in the marine and offshore engineering segment continued at a more muted 1.4 per cent, while land engineering output declined by 9.8 per cent.

Precision engineering production grew by 3.4 per cent in July, down a tad from 4.3 per cent in the month before, supported by the higher production of refrigeration systems, process control equipment and mechanical engineering work in the machinery and systems segment.

Economy watchers cited a high base effect from the previous year, as well as a potential escalation in trade tensions between the United States and China, as key risks to manufacturing activity in the second half of 2018.

"The intensifying US-China trade war will likely disrupt supply chains and slow manufacturing growth in the coming months," Maybank Kim Eng economists Chua Hak Bin and Lee Ju Ye wrote in a report. "We are currently factoring in low single-digit manufacturing growth in the second half, not a contraction."

But UOB's Mr Liew said that an expected slowdown would be due largely to the high base effect: "The negative impact from US-China trade will be felt more prominently in 2019."