Singapore factory output surprises with 4% growth in October

SINGAPORE'S manufacturing output grew an unexpected 4 per cent year on year in October, defying economists' expectations of a 1.4 per cent fall and outstripping September's revised figure of 0.7 per cent growth.

Even excluding the volatile biomedical manufacturing sector, output was up 0.2 per cent, according to Singapore Economic Development Board figures on Tuesday.

On a seasonally adjusted month-on-month basis, manufacturing output was up 3.4 per cent, slowing from September's revised 4 per cent rise, though it still beat economists' expectations of 0.6 per cent growth. Excluding biomedical manufacturing, output was up 6.5 per cent.

Biomedical manufacturing continued to be the main driver of growth, with output up 24 per cent year on year in October. Pharmaceuticals were up 29.6 per cent, while medical technology output rose 13.1 per cent on the back of higher export demand for medical devices.

General manufacturing output rose 7.3 per cent, with growth in food, beverages and tobacco, as well as miscellaneous industries more than making up for an 11.8 per cent fall in printing output.

Precision engineering output rose 3.4 per cent, with 9.9 per cent growth in precision modules and components more than making up for a 1.7 per cent fall in machinery and systems.

Electronics emerged from decline with a 0.4 per cent growth in output. Output rose for computer peripherals, data storage, and infocomms and consumer electronics, though semiconductors and other electronic modules and components still saw contraction. In the first 10 months of the year, the electronics cluster's output was down 6.5 per cent from the same period last year.

Still, Maybank Kim Eng economists Chua Hak Bin and Lee Ju Ye noted that the semiconductors segment was "almost back into positive territory", with its 0.9 per cent fall in October having eased from September's steep 13 per cent decline.

The semiconductor output level has risen to a three-month high, observed Barclays economist Brian Tan. "The strength in electronic products is certainly encouraging, but its durability still needs to be monitored, in our view," he added.

Transport engineering output was down 2.4 per cent. A 21 per cent growth in aerospace output could not make up for a 4.8 per cent drop in the land segment and a 22.8 per cent fall in marine and offshore engineering.

Chemicals performed worst in October, down 9.6 per cent, with only the petroleum segment seeing a 3 per cent rise in output. Maintenance shutdowns in both the specialities and petrochemicals segments weighed on output, resulting in contraction of 12.4 per cent and 12.8 per cent respectively. Other chemicals output was down 3 per cent.

Barclays is maintaining its gross domestic product (GDP) growth forecasts at 0.7 per cent in 2019 and 0.9 per cent in 2020. The Maybank economists are more optimistic, seeing the possibility of manufacturing emerging from recession earlier than expected, in the fourth quarter rather than next year.

They kept their 2019 GDP growth forecast at 0.9 per cent, but upgraded their 2020 forecast to 1.8 per cent, up from 1.6 per cent previously. "We think the manufacturing recovery is on a firmer footing, as the impact from the US-China tariff shock dissipates," they said. "Easier global monetary conditions and a potential partial trade deal will help reignite capex spending and support a recovery."

Noting that the global Purchasing Managers' Index (PMI) - a leading indicator of manufacturing sentiment -- bottomed out in July and has since improved, they expect a similar bottoming-out and rise in Singapore's PMI out of contraction and into expansion by early next year.