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Singapore factory output posts surprise 3.4% rise in January - but can the lift last?

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Defying expectations of more decline, Singapore’s factory output rose in January on a surge in biomedical manufacturing, even as electronics remained in contraction, according to preliminary figures from the Economic Development Board (EDB) out on Wednesday.

DEFYING expectations of more decline, Singapore’s factory output rose in January on a surge in biomedical manufacturing, even as electronics remained in contraction, according to preliminary figures from the Economic Development Board (EDB) out on Wednesday.

Despite an earlier Chinese New Year holiday, industrial production rose by 3.4 per cent year on year, confounding the expectations of a 5.8 per cent drop from economists in a Bloomberg poll.

The increase has lifted factories out of a two-month losing streak, even with the fall in output in December revised downwards from 0.7 per cent to a more negative 3.7 per cent.

But when the double-digit jump in the volatile biomedical cluster was left out, industrial production clocked a decrease of 3.8 per cent.

“Overall, economic activity appears to have held up in January despite the coronavirus outbreak and the earlier timing of the Lunar New Year,” said Barclays economist Brian Tan in a note.

“However, we remain cautious on the economic outlook as the Covid-19 outbreak may have a more substantial impact in February.”

Euben Paracuelles and Charnon Boonnuch, from Nomura, also said in a report that “the uncertainty around the Covid-19 outbreak remains elevated and will likely start to adversely affect (industrial production) activity in February”.

Meanwhile, the industrial production index has also been tweaked to shift its base year from 2015 to 2019, which the EDB said was “to reflect the latest structure of Singapore’s manufacturing sector”.

Biomedical manufacturing production was up by 41.1 per cent, as a different mix of active pharmaceutical ingredients, and higher production of biological products, cranked up output.

Yet the linchpin electronics cluster widened its yearly decline to 7.2 per cent, after a 1.1 per cent dip in December, as infocomms and consumer electronics was the only segment to notch growth. Semiconductors returned to negative territory after a mild pick-up in the month before.

Meanwhile, the chemicals cluster also remained contractionary with a decrease of 5.5 per cent, as higher production of industrial gases and additives in the specialities segment could not stave off the sustained sluggishness in petroleum and petrochemicals.

Transport engineering saw a broad-based decline that dragged output down by 9.3 per cent, and general manufacturing production slid by 10.6 per cent, which the EDB said was partly due to the Chinese New Year break that fell in late January.

The sector’s bright spot for the month was precision engineering, where production swelled by 18.1 per cent, with a large lift from higher output of semiconductor and process control equipment.

On a seasonally adjusted, monthly basis, overall output was up by 18.2 per cent, or 11.8 per cent when biomedical manufacturing was excluded.

In downgrading Singapore’s official full-year growth forecast, the Ministry of Trade and Industry earlier said that outward-oriented sectors like manufacturing will be affected by the weaker outlook in the Republic’s end-markets, including China, where the epidemic began.

“Firms in these sectors could also be affected by supply chain disruptions arising from prolonged factory closures and labour shortages in China,” it added in its Feb 17 report.