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Singapore output growth on cue, slowing to 6% in July

Economists forecast moderating H2 growth, citing high base effect, trade conflict and volatile biomed in driver's seat

Backed by pharmaceuticals, manufacturing output rose by 6 per cent on the previous year, in line with economists' forecasts, according to Economic Development Board (EDB) data on Friday.


Backed by pharmaceuticals, manufacturing output rose by 6 per cent on the previous year, in line with economists' forecasts, according to Economic Development Board (EDB) data on Friday. Growth was lower than in the month before, especially with June's industrial production revised from 7.4 per cent to 8 per cent. On a seasonally adjusted basis, manufacturing output fell month on month by 1.7 per cent.

Trade tensions between the US and China could stifle factory activity and exports in the months ahead, observers warned; but a high base effect from the previous year is the pressing concern. UOB senior economist Alvin Liew remarked that "we are wary the high base of the electronics cluster from 2017 may result in a slower pace of expansion - and even turning negative".

Coming off its peak, the electronics cluster continued to lose steam. It logged growth of 5.4 per cent, down from 7.9 per cent in June and the smallest rise since February 2016, as noted by Selena Ling, head of treasury research and strategy at OCBC.

Growth in the key semiconductor segment has slowed into the single digits, with output up by 7 per cent year on year.

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"Electronics production will likely continue easing as global tech demand cools, converging towards and reflecting the weak electronics exports in the last two quarters," said Maybank Kim Eng economists Chua Hak Bin and Lee Ju Ye in a report.

Biomedical manufacturing, fuelled by the pharmaceutical segment, retained its outsized impact on factory growth with a 10.1 per cent increase in production in July, against 13.1 per cent the month before.

Excluding the biomedical cluster, manufacturing growth came in at a more muted 5.1 per cent, and economists are mixed on what the reliance on pharmaceuticals could mean for growth in the coming months.

"Although the biomedical manufacturing output managed to put up a good performance in July, its volatile and erratic nature implies that the good performance may not be sustainable," said Tan Khay Boon, senior lecturer at SIM Global Education.

But OCBC's Ms Ling called the latest numbers "actually still a fairly positive start" to the second half, given last year's strong manufacturing growth. She added that "a full-year manufacturing growth forecast of 7 per cent year on year is achievable, even as the electronics cluster hands over the driving reins to the biomedical cluster for the remaining months of 2018".

General manufacturing reversed its 0.3 per cent growth in June to shrink by 0.6 per cent in July, as the only cluster to post a year-on-year decline.

Chemicals bucked the trend of easing growth expand by 7.4 per cent, up from 1.7 per cent in June, led especially by the "other chemicals" and petrochemicals segments. "On the other hand, petroleum throughput fell 3.6 per cent due to plant maintenance shutdown," EDB noted.

HSBC economist Chen Jingyang said a highlight in the data was "a sharp acceleration in the aerospace sector on the back of higher volume of engine repair and maintenance work from commercial airlines", and added that oil prices are "an important variable for Singapore's offshore engineering and petrochemical sectors".

Precision engineering grew by 3.4 per cent in July, against 4.3 per cent in June, while transport engineering grew by 9.6 per cent, down from 14.3 per cent before.

As for US-China trade headwinds, Mr Liew said that any negative impact "will be felt more prominently in 2019", while Mr Seah said "market jitters appear to be overhyped by sentiments and unhealthy political rhetoric".

"The trade actions thus far are very specific and pretty much bilateral in nature," Mr Seah added. "So, industries can reshuffle their supply chains to circumvent the tariff actions while policies can be employed to soften the potential impact."

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