Jump in June factory output sees economists revising upwards Q2 GDP growth estimates

Singapore

BETTER-than-expected industrial production numbers in June have led economists to expect Singapore's gross domestic product (GDP) growth for the second quarter to be upgraded to closer to 3 per cent, up from the latest flash estimate of 2.5 per cent.

Singapore's factory output went up 13.1 per cent last month from a year ago, making it the 11th straight month of expansion, going by data released on Wednesday by the Economic Development Board.

It beat the Bloomberg market consensus growth forecast of 8.5 per cent, and is almost triple the 4.4 per cent increase in May, which had been revised down from an earlier 5 per cent estimate.

Among economists who expect an upward revision in Q2 GDP growth, DBS's Irvin Seah said it will be "nearer 3 per cent"; Maybank's Chua Hak Bin and Lee Ju Ye put it at 2.8 per cent.

Above expectations

The stellar manufacturing output in June was powered mostly by electronics, which continued its streak as the star performer. There was also a rebound in the volatile pharmaceutical segment.

Excluding biomedical manufacturing, output grew 11.9 per cent year-on-year.

On a seasonally adjusted month-on-month basis, manufacturing output expanded by 9.7 per cent in June. Without biomedical manufacturing, output grew 4 per cent.

Electronics jumped 25.5 per cent in June year-on-year, again driven mainly by semiconductors, which posted a robust growth of 37.4 per cent.

While the growth rate for electronics is still exceptionally strong, it has tapered off from the 34.9 per cent year-on-year expansion clocked in May and the 49.2 per cent in April.

DBS's Mr Seah said: "We've been saying that the electronics rally is coming to an end, but we don't expect demand to collapse. We expect a gradual tapering off for now, and a more pronounced moderation towards the tail end of the year, due to slower demand from China."

Within the electronics cluster, growth was partially offset by declines in the infocommunications & consumer electronics segment (-1.7 per cent) and the data storage segment (-17.4 per cent).

In June, the headline manufacturing output of 13.1 per cent was boosted by the biomedical manufacturing cluster, which roared back to life with a year-on-year growth of 18.3 per cent.

This is propelled by a surge in pharmaceuticals of 21.4 per cent, after declines of 36.1 per cent in May and 33.6 per cent in April. The fickle pharmaceutical segment accounts for about a quarter of overall manufacturing.

This outcome was in line with Mr Seah's expectations, as the biomedical cluster has had a "rough patch" in the last few months; key production plants were shut down for routine maintenance, so the cluster was due for a rebound.

While he expects pharmaceuticals to continue to pick up in the next few months, he cautions that there is no specific pattern in its production.

The other clusters, including chemicals notched up a 9.4 per cent rise in output; that of precision engineering rose 5.3 per cent, and transport engineering, 4.6 per cent.

The only exception is general manufacturing industries, which fell 5.3 per cent in June, with all segments recording declines.

Maybank economist Chua Hak Bin singled out the transport engineering numbers as being particularly "impressive".

It recorded an increase for the first time in 20 months, boosted by aerospace (+24.9 per cent) and land transport (+23.9 per cent).

In general, he is optimistic about the manufacturing outlook for the rest of the year, as he expects a broadening recovery beyond electronics.

He said: "The worry has always been that growth is only dependent on electronics as the sole strong engine, but it's expanding across the other clusters, so we think manufacturing growth will be sustained."

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