Manufacturing surprise boosts Q1 GDP estimates

Singapore

SINGAPORE's Q1 GDP estimates look set to be upgraded, after the manufacturing sector grew by a surprising 12.1 per cent in March from a year ago, boosted by double-digit jumps in transport engineering and biomedical output.

Economists now say the economy could have grown up to 6.1 per cent in Q1 this year - higher than the 5.1 per cent advance estimate released by the Ministry of Trade and Industry (MTI) last week.

The strong, broad-based growth caught economists off-guard; the 18 who were polled by Bloomberg before the data release had a median growth forecast of 6.4 per cent.

March's growth in industrial production marked the second consecutive month of double-digit expansion, following February's revised year-on-year pace of 13.1 per cent (previously estimated at 12.8 per cent).

Though the biomedical manufacturing cluster grew 16.4 per cent in March from a year ago - helped by a 19.4 per cent expansion in the pharmaceuticals segment - it was not the sole driver of growth.

Indeed, even if biomedical manufacturing were excluded, the Singapore Economic Development Board (EDB) said yesterday that industrial production would have increased 10.9 per cent year on year.

Output of the transport engineering cluster surged 29.4 per cent, boosted by its marine & offshore engineering segment. EDB said the segment expanded 45.1 per cent, with "several rig building and ship building projects achieving milestone completion" last month.

All other clusters also expanded in March. Electronics production grew 8.7 per cent, driven by a 14.1 per cent output increase in the semiconductors segment. Expansion was also seen in the chemicals (5.2 per cent), precision engineering (4.3 per cent) and general manufacturing industries (one per cent) clusters.

In sequential terms, manufacturing output outstripped market expectations of a 6.1 per cent increase from February, after seasonal adjustments. The nine economists polled by Bloomberg had a median forecast of 1.5 per cent month-on-month growth.

Excluding biomedical manufacturing, output rose 1.6 per cent from the previous month, EDB said.

With March's exceptionally strong performance, economists from CIMB, OCBC and UOB expect Q1 manufacturing growth to come in at 9.8 per cent from a year ago - higher than the official estimate of 8 per cent.

In line with this, economists predict upward revisions in the government's Q1 GDP advance estimates, both in year-ago and sequential terms.

New growth forecasts range from 5.5 to 6.1 per cent year on year (from the official estimate of 5.1 per cent), and 1.8 to 3.6 per cent quarter on quarter (from 0.1 per cent).

ANZ and Bank of America Merrill Lynch (BAML) economists noted that March's robust factory output occurred despite a sharply weaker non-oil domestic exports (NODX) figure in the same month. NODX fell 6.6 per cent from a year ago, against the 0.5 per cent growth forecast by the market.

Said ANZ's Daniel Wilson and Glenn Maguire in a research note: "We still view the sharp fall in NODX as temporary and we will likely see that converging to industrial production, rather than industrial production growth down to the NODX growth rates."

While BAML's Chua Hak Bin thinks factory output "should probably hold up", he does not expect the headline number to look as fantastic. "This (rate of) growth is just far too strong, and the base last year was low as well," said Dr Chua, who expects industrial production to average 4.5 to 5 per cent for the rest of the year.

UOB economist Francis Tan is estimating a more modest average monthly growth rate of 4.1 per cent in coming months.

At the same time, CIMB's Song Seng Wun and DBS's Irvin Seah cautioned against getting carried away with March's bullish showing, given that the broad-based growth was largely driven by unpredictable segments.

Of the 12.1 per cent increase in March's factory output, Mr Song estimates that almost 5 percentage points came from transport engineering, while the biomedical manufacturing cluster contributed about 4 percentage points.

Added Mr Seah: "Biomedical manufacturing (has a reputation for) being volatile, and the push from the (marine & offshore engineering segment) is a factor that tends to be a bit lumpy. When orders are delivered, you'll see this sort of jump - but that's not going to happen all the time."