Fall in Dec manufacturing output less than expected

SINGAPORE — Manufacturing performance contracted in December, the third monthly decline in the past four months amid faltering global demand and low oil prices.

Data from the Economic Development Board (EDB) released yesterday showed a 1.9 per cent year-on-year contraction in manufacturing output last month. Excluding the volatile biomedical manufacturing cluster, output declined 2.1 per cent.

Nevertheless, the performance was better than what some economists had expected: The median estimate in a Reuters survey of 13 economists was for factory output to fall 3.9 per cent in December year-on-year.

UOB economists Francis Tan and Jimmy Koh said in a research note that the better-than-expected performance “bodes well” for GDP (gross domestic product) growth for the fourth quarter of last year. They added that fourth quarter GDP growth could potentially be revised higher to 1.7 per cent year-on-year, from the Ministry of Trade and Industry’s 1.5 per cent advance estimate.

Overall, manufacturing output last year grew 2.6 per cent last year, compared to 2013. For the year ahead, economists said the sector could grow modestly, citing the expected slight recovery in global demand by the second half of the year.

Mr Michael Wan, an economist at Credit Suisse, said: “In the near term, it will remain flat. There is not a strong bounce seen for the first quarter of the year due to low oil prices affecting output. We expect a pick-up to happen in the second half of the year, with ... stronger demand from the United States and hopefully from Europe.”

Nevertheless, Mr Wan said the performance of the petroleum refining as well as the marine and offshore engineering segments will continue to be dragged down by the low oil prices. The UOB economists also cited low oil prices as among the headwinds for the Singapore economy this year.

Others are the weak economic conditions in the eurozone and Japan, and the tight domestic labour market. “We expect the re-location of lower-valued, commoditised manufacturing activity from Singapore to cheaper production locations to continue this year,” Mr Tan and Mr Koh wrote.

“Nonetheless, we are of the view that a sustained US economic recovery in 2015 will provide the silver lining for the Singapore manufacturing sector as it will boost demand for semiconductors and benefit the electronics manufacturing cluster.”

Mr Song Seng Wun, regional economist at CIMB, added: “We are keeping our fingers crossed. There is a slight improvement in global demand and we see factory output for the year ahead to possibly expand 3 to 5 per cent.”

Manufacturing output for five of the six clusters fell last month compared to the same period last year, with the precision engineering cluster — which grew 10.9 per cent — the sole exception. The transport engineering cluster shrank the most, contracting by 6.8 per cent.

The electronics and biomedical manufacturing clusters contracted by 2.4 per cent and 1 per cent respectively. The chemical cluster shrank by 2.7 per cent, while output from the general manufacturing industries fell by 4 per cent.