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Manufacturing output picks up in June, may lift Q2 GDP

SINGAPORE — Factory output picked up last month despite continued weakness in the electronics sector, and economists said this could boost second-quarter economic growth, although the overall outlook remains uneven amid domestic constraints.

SINGAPORE — Factory output picked up last month despite continued weakness in the electronics sector, and economists said this could boost second-quarter economic growth, although the overall outlook remains uneven amid domestic constraints.

Manufacturing output grew by 0.4 per cent in June from the same month a year earlier, following May’s 1.9 per cent contraction, Economic Development Board (EDB) data showed yesterday. This may lead to second-quarter GDP growing more than the official year-on-year estimate of 2.1 per cent, CIMB economist Song Seng Wun said.

“With June’s manufacturing numbers, the sector will likely expand by 1.5 per cent on-year compared to the 0.2 per cent estimate,” he said. “Now, we can expect the sequential GDP contraction in Q2 to shrink from 0.8 per cent to 0.2 per cent, while on-year growth could go up to 2.4 per cent.”

OCBC economist Selena Ling agreed that second-quarter growth may turn out better than initially expected — potentially to 2.3 per cent. “But the outlook has not changed all that much. Any recovery in the second half will at best be modest.” she added.

June’s output data came a day after the Monetary Authority of Singapore (MAS) cautioned that weaknesses in manufacturing industries are to be expected as Singapore goes through economic restructuring. This will remain the salient theme for the electronics sector’s performance for the rest of the year, ANZ economist Ng Wei Wen noted.

“The MAS has been talking about the ‘servicisation’ of electronics manufacturing — that will be the mid-to-long term development. But in the near term, supply side constraints, especially in terms of the labour crunch, will continue to depress production and exports,” he said.

Last month, the output of electronics — which accounts for a third of total manufacturing — declined by 4.8 per cent, accelerating from May’s 4 per cent drop. The main drag was again the semi-conductor segment, where output has been dropping since April due to a “plant-specific factor”, the EDB said.

The weakness in the electronics sector was partly offset by the better performance in other sectors, with biomedical output growing by 1.6 per cent year-on-year in a rebound from the 9.1 per cent drop in May. Within the sector, pharmaceutical manufacturing declined last month, but the rate of decrease slowed to just 0.3 per cent from 11.6 per cent previously.

Chemicals and precision engineering — which account for 22.7 per cent of total manufacturing — also saw improved performance, growing their output by 10.5 per cent and 4.8 per cent, respectively. Output in marine and offshore engineering grew by 9.3 per cent last month.

“All these mean we will likely see a somewhat uneven outlook, with the tech sector still likely to be a drag for the rest of the year, and much will depend on how the recovery is coming through from other key clusters to offset tech’s decline,” Mr Song said.

“For the second half this year, if we can get a 1 to 2 per cent manufacturing growth, we’ll already have done well in terms of supporting the full-year GDP growth to reach the 2 to 4 per cent target.”

The manufacturing sector’s recovery may be helped by positive signs emerging in external environment, SIM senior lecturer Tan Khay Boon said, as the United States economy sees further improvement in both the job market and corporate spending. Meanwhile, in China, the manufacturing purchasing managers’ index has risen to an 18-month high of 52 in July.

But restructuring will remain the thorn in manufacturers’ side, Dr Tan noted, saying: “The high labour and land costs will continue to weigh down the competitiveness of our manufacturers.”

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