May factory output grows a surprise 2%

Share   |      |    Comment   |    E-mail to friend   |    Bookmark & Share   

MAY factory output grew 2 per cent, confounding consensus expectations of a decline and marking a second month of year-on-year growth. April's revised 0.4 per cent growth in production was the first expansion after six months of decline.

On a seasonally adjusted month-on-month basis, manufacturing output fell 1.6 per cent in May, after April's 25.9 per cent increase, data released yesterday by the Economic Development Board shows.

Economists are cautiously upbeat, saying that although the volatile pharmaceutical sector was - again - the key driver of industrial production in May, signs of slowing output declines in other clusters are persisting.

Leong Wai Ho of Barclays Capital said: 'The gradual trend of recovery in the electronics cluster is still intact, powered by the semiconductor segment.

'Signs are also emerging that the recovery has started to broaden from electronics into the chemicals and precision engineering clusters.'

The biomedical manufacturing cluster expanded 120.4 per cent year on year in May, thanks to a 138.6 per cent leap in pharmaceutical output. Plants switched to producing higher-value patented drug compounds after US approvals came through in April, and the rise was also boosted by a low base in May last year.

Excluding biomedical manufacturing, output contracted 17.7 per cent from May 2008, and a seasonally adjusted 0.5 per cent from April.

Sectors in which the pace of production decline moderated in May included chemicals, precision engineering and general manufacturing.

And while the electronics sector's 22.3 per cent year-on-year fall in output was greater than April's 21.8 per cent, it was significantly milder than Q1's 38 per cent drop.

Transport engineering's production, which tends to be lumpy, also fell 8.1 per cent from a year back.

Citi economist Kit Wei Zheng believes April and May's industrial production numbers could 'impute a further statistical lift to the year-on-year GDP numbers' and expects the advance second-quarter GDP growth estimates to come in at close to minus 4 per cent, compared with Q1's 10.1 per cent decline.

Barclays' Mr Leong now expects a 'more lasting bounce in industrial activity in Singapore' with 'additional support from the opening of three biologics (vaccine) plants and Shell's US$3 billion petrochemical cracker between Q3 2009 and Q1 2010'.

Share   |      |    Comment   |    E-mail to friend   |    Bookmark & Share