Manufacturing output continues to rise but at a slower pace

SINGAPORE — Industrial production rose 5 per cent in May from a year ago, increasing for the 10th straight month, showed data released on Friday (June 23) by the Economic Development Board (EDB).

However, the pace of expansion trailed forecasts, slowing from the 6.7 per cent year-on-year increase in April, and the 11 per cent growth in March. Economists in a Reuters poll had expected a 7.4 per cent increase. Excluding biomedical manufacturing, output grew 13.1 per cent year-on-year in May.

“Whether biomedical is included or not, there are signs to suggest that the manufacturing rally has peaked… We expect production growth to run sideways in the coming months before a more pronounced downward trend at the latter part of the year. Weaker consumer demand from China and a tighter monetary policy from the United States would be some of the key reasons,” said DBS senior economist Irvin Seah.

The increase in output in May was not broad-based, with three clusters expanding and three contracting. The key electronics cluster continued its expansionary momentum with an output surge of 35.1 per cent in May, driven by robust growth in the semi-conductors segment of 48.1 per cent. Cumulatively, the output of the electronics cluster has expanded 36.9 per cent in the first five months of the year from the corresponding period last year.

Precision engineering and chemicals output grew by 19.1 per cent and 5.3 per cent in May, respectively.

Output from the biomedical manufacturing, transport engineering and general manufacturing clusters fell. The lumpy biomedical manufacturing cluster registered a 22.2 per cent drop in output, led by a 32.6 per cent slump in the production of pharmaceuticals.

Meanwhile, transport engineering shrank 12.8 per cent, weighed down by a 28 per cent decline in marine and offshore engineering output, as rig-building activities and demand for oilfield and gasfield equipment remained weak. General manufacturing was also weak, with output falling by 9 per cent.

UOB economist Francis Tan said: “It can be observed that the growth among the various manufacturing clusters remain uneven and overly reliant on the cyclical increase in the demand for semi-conductors and its surrounding services (for example, precision engineering cluster).”

“Although we remain optimistic in the continuing growth for the electronics and precision engineering clusters in 2017, we believe the double-digit growth for semi-conductor production may slow into the single digits as we proceed into the second half of the year, due to base effects and slower second-half capital expenditure growth expected in China,” he added.

“We are still hopeful that the strong manufacturing performance that started from 2016 will spill over to this year and support overall gross domestic product growth,” he said.

On a seasonally adjusted month-on-month basis, overall manufacturing output fell by 3.5 per cent in May, the EDB data showed. Excluding biomedical manufacturing, output fell 4.2 per cent from the previous month.