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Factory output falls again after January uptick

SINGAPORE – Factory output in February resumed the broad downtrend after a revised uptick in the previous month, highlighting the challenges facing Singapore manufacturers amid tepid global demand and economic restructuring at home.

SINGAPORE – Factory output in February resumed the broad downtrend after a revised uptick in the previous month, highlighting the challenges facing Singapore manufacturers amid tepid global demand and economic restructuring at home.

Industrial production last month fell 4.7 per cent from a year earlier, data from the Economic Development Board showed yesterday, worse than the 3.7 per cent fall expected by economists in a Reuters poll. In January, output was revised to show 0.1 per cent growth, up from the 0.5 per cent contraction reflected in preliminary data released last month. If not for the January positive blip, manufacturing output would have contracted for the 13th consecutive month in February.

“January posted a modest growth for a change, all thanks to the recovery from drugs. February’s data was almost along a similar vein, but the Chinese New Year period distorted the numbers somewhat. In an environment where global demand remains fairly uneven, the (contraction) was exaggerated by the holiday-shortened month,” said CIMB Private Banking economist Song Seng Wun.

In February, the biomedical cluster was once again the star performer, with a 5.8 per cent year-on-year increase, lifted by higher export demand for medical devices and growth in the pharmaceuticals segment. Excluding biomedical manufacturing, industrial production fell 7.4 per cent year-on-year in February.

Chemicals, the only other cluster to post a gain, saw a modest growth of 1.2 per cent as stronger output in specialities and other chemicals, including fragrances, offset a drop in the petrochemicals segment.

The key electronics cluster contracted by 8.4 per cent, reversing from the 3.6 per cent gain in the previous month, possibly due to front-loading in semiconductors and other electronic modules ahead of the Chinese New Year holidays, noted Ms Selena Ling, OCBC Bank’s head of treasury research and strategy.

The other three clusters in the industrial production index — precision engineering, transport engineering and general manufacturing — all contracted.

On a seasonally adjusted month-on-month basis, industrial production decreased 4.8 per cent in February, after rising a revised 9.9 per cent in January. Taking the first two months together, manufacturing output is down 2.2 per cent year-on-year cumulatively.

“(The figures are) not that bad, but nonetheless a decline,” said Mr Song. Going forward, he expects the year-on-year data to alternate between contraction and modest growth.

“March 2015’s output fell 10.4 per cent; this is a smaller mountain to climb. We could even possibly see headline industrial production go into positive territory if we get another big lift seen in January, if medical comes to the rescue again ... But for Singapore to see a meaningful turnaround, we will have to see signs of stronger demand from the Group of Eight economies and more signs of confidence from China.”

OCBC’s Ms Ling said she expects manufacturing to continue to contract for the rest of 2016, barring a strong turnaround in Singapore’s key export markets.

UOB, on the other hand, said the second half of the year could see some pickup. “First, we expect the economic conditions in the US to continue on an improving path. Better jobs numbers, stronger wage gains due to the tighter labour market, and a stronger USD will see the rise of consumption demand from the average American consumer. Second, the base effects from the low base in 2015 will provide some support for growth,” said UOB economist Francis Tan.

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