Singapore Q1 GDP expected to be upgraded with better-than-expected March factory output

ALTHOUGH Singapore's factory output in March eased from the previous month, the better-than-expected performance is expected to improve the Republic's first-quarter economic growth.

Industrial production (IP) last month slowed to 3.4 per cent year on year - dragged by the biomedical cluster - after a 17.5 per cent jump in February, data from the Singapore Economic Development Board (EDB) on Tuesday (Apr 26) showed. Excluding the typically volatile biomedical manufacturing sector, output grew 9.7 per cent year on year.

On a seasonally adjusted month-on-month basis however, manufacturing output fell 12.6 per cent, while the figure is 6.1 per cent excluding biomedical manufacturing.

Still, this was better than the 2 per cent growth private-sector economists polled by Bloomberg expected.

"While the data appear to show a notable deterioration in March from February, we believe this was mainly due to a seeming lack of holiday-related downtime in February," said Barclays regional economist Brian Tan, noting that the Chinese New Year holiday - which was in early February - tends to weigh on manufacturing activity in the month it is held.

He added that the seasonally adjusted IP levels in March generally remained above their January levels, suggesting that any disruption from the lockdowns in China and Russia-Ukraine war appear limited at the time.

March's performance brings Q1 manufacturing output to 7.1 per cent, according to economist estimates, which is higher than the Ministry of Trade and Industry's advance estimate of 6 per cent.

Economists said this implies an upgrade of 0.2-0.7 percentage points to the final print of Q1's gross domestic product (GDP), which according to advance estimates was 3.4 per cent.

OCBC chief economist Selena Ling noted that the March IP index was at its highest level since December, but the question is whether the momentum can be sustained in view of China’s lockdowns which may affect regional manufacturing supply chains from April.

"While it may still be prudent to expect that Q1 manufacturing momentum will moderate into Q2, the industrial production index base is not extremely high ranging from 113-125 for April-November 2021, so an outright contraction looks unlikely at this juncture," said Ling.

UOB economist Barnabas Gan said the recent easing of measures and the likely upgrade of Q1 growth are likely to inject some upside risks to Singapore's full-year growth, even if this needs to be balanced against the downside risks.

He added that Singapore's manufacturing prognosis remains "favourable" for the year ahead, especially given the "exceptionally encouraging" recovery in the transport engineering sector.

The sector was the star performer in March with output jumping 20.7 per cent year on year, compared with 5 per cent in the previous month. The aerospace segment in particular surged 39.3 per cent with more orders from commercial airlines.

Nomura economists Euben Paracuelles and Charnon Boonnuch noted that this is the first time aerospace output was above its pre-pandemic level in Q1 2019, marking a restart of the segment that could provide additional support to overall IP in the coming months.

However, risks to their 2022 full-year GDP forecast are tilted to the downside, said the Nomura team, due to the sharp slowdown in China, although this could be partially offset by Singapore's border reopening.

Maybank economists Chua Hak Bin and Lee Ju Ye said manufacturing growth could ease to "low single-digit pace" in the remaining quarters, "as chip production is operating near full capacity and on high base effects".

Electronics output in March grew 14.5 per cent year on year, slowing from the previous month's 32 per cent jump.

Keeping their GDP outlook at 2.8 per cent, below the official 3-5 per cent forecast, the Maybank team noted that Singapore's purchasing managers' index in March also slid to its lowest level since August 2020.

Referring to the central bank's recent move to tighten monetary policy, they said: "A stronger Singapore dollar and rising interest rates may also hurt the relative competitiveness of Singapore firms."