Singapore factory output grows 13.8% in May as semiconductor production surges

SINGAPORE’S factory output in May beat analysts’ expectations to grow at a much faster clip on the back of a surge in semiconductor production, according to data from the Singapore Economic Development Board (EDB) on Friday (Jun 24).

Industrial production grew 13.8 per cent year on year, up from a revised 6.4 per cent in April, a performance that surprised private-sector economists polled by Bloomberg who had expected a 5.5 per cent growth.

Excluding the usually volatile biomedical manufacturing, May’s output rose 18 per cent, compared with 8 per cent in the previous month.

On a seasonally adjusted month-on-month basis, manufacturing output grew 10.9 per cent, while the figure is 9.8 per cent excluding biomedical manufacturing.

Electronics production jumped 33.6 per cent year on year in May, compared with just 10.4 per cent the previous month.

In particular, semiconductor output surged 45.7 per cent year on year, improving from April’s 12.9 per cent and helping to offset contractions in other segments. EDB said this comes from strong demand from 5G markets and data centres amid the global chip shortage.

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Transport engineering growth eased in May to 12.9 per cent year on year, from 16.6 per cent in the previous month. The aerospace segment expanded 27.2 per cent, up from 24.2 per cent in April, as the easing of global air travel restrictions have led to a higher production of aircraft parts as well as more maintenance, repair and overhaul jobs from commercial airlines.

Other sectors that saw growth were:

• General manufacturing (9 per cent)
• Precision engineering (3.2 per cent)

Meanwhile, biomedical manufacturing shrank for the third straight month, with output in May declining 7.2 per cent year on year, compared with a 1.1 per cent contraction in the previous month.

EDB noted that the medical technology segment grew 2.7 per cent with higher demand for medical devices from the US and euro zone, whereas the pharmaceuticals segment contracted 14.8 per cent due to “a different mix of active pharmaceutical ingredients being produced”.

Chemicals output shrank 3.4 per cent year on year, on par with April’s decline, dragged by a steep contraction in the petrochemicals segment.

The overall good showing from Singapore’s manufacturing sector has spurred optimism among some economists.

“One of the reasons why I’m fairly confident that Singapore can achieve over 3 per cent growth this year despite downside risks from a China slowdown and rising fears of a US recession is that our manufacturing sector, especially electronics, is still holding up and very resilient notwithstanding the global supply chain bottlenecks,” said OCBC chief economist Selena Ling.

“With manufacturing output running at 8.7 per cent for the first 5 months of 2022, even if it moderates to around 3 per cent year on year in H2, full-year manufacturing growth is still likely biased higher than our initial estimate of 4.0 per cent year on year,” she added.

The stronger-than-expected performance in semiconductors should help lift second-quarter gross domestic product (GDP), said economists, although estimates vary.

Maybank economists Chua Hak Bin and Lee Ju Ye are expecting a 3.5-4 per cent GDP growth for Q2, while Barclays regional economist Brian Tan believes GDP is on track to hit 6.8 per cent, up from 3.7 per cent in Q1.

Tan said manufacturing activity has held up, with the services sector recovering strongly after Covid-19 restrictions were lifted.

He added that the data continues to suggest the impact from China’s lockdowns has been “manageable”, with the bigger drivers of the economic recovery likely to be the relaxation of Covid-19 restrictions and international travel, rather than exports and manufacturing.

Other economists cautioned that headwinds remain nonetheless and could slow down growth in the second half of 2022.

“We expect manufacturing to slow given the easing in global capital spending but this should be offset by the services recovery as mobility and travel improve further,” said JPMorgan economist Nur Raisah Rasid.

UOB senior economist Alvin Liew outlined 4 external risks - the Russia-Ukraine conflict, global supply disruptions, monetary policy tightening in advanced economies and a resurgence of Covid-19 infections or new variants.

Liew said he continues to be positive on the outlook for electronics, transport engineering, general manufacturing and precision engineering to drive overall IP growth but is also cognisant of these external risks.

The Maybank team said manufacturing momentum could ease to low single-digit growth in H2, due to higher base effects for semiconductors as well as the slowdown in sectors such as petrochemicals and pharmaceuticals as a result of weakening global demand.