S'pore economy on course despite November blip

Biomed slides 33.4% but Nov's underlying manufacturing trend remains stable

Singapore's economy remains on track to hit the higher end of the government's full-year gross domestic product growth target of 7.5-8 per cent, despite a blip in manufacturing output in November, economists said.

Most economists are sticking by their full-year GDP estimates, with Citigroup pegging its forecast at 7.8 per cent and Standard Chartered at 8 per cent. CIMB-GK now expects GDP growth to be 7.9 per cent, down from its earlier forecast of 8.5 per cent.

'I don't see GDP growth falling outside the official range. It's likely to be at the higher-end of the 7.5-8 per cent range,' CIMB-GK economist Song Seng Wun said.

Data from the Economic Development Board yesterday showed manufacturing output in November dipped 1.5 per cent from a year ago after a 2.2 per cent rise in October. Contraction in biomedical manufacturing, precision engineering and general manufacturing industries clusters offset expansion in other clusters.

The output decline last month was smaller than expected, compared to a median forecast of a 2.5 per cent contraction in a Reuters poll of nine economists.

Economists noted that the main drag in November was the biomedical segment, which is typically volatile month-on-month and which slumped 33.4 per cent in November from a year ago, while the underlying manufacturing production trend remains stable.

The decline in biomedical production is due to a 35.6 per cent fall in pharmaceutical output as some active pharmaceutical ingredients were not produced. There was a 15 per cent decline in the production of medical devices led by lower demand from Europe and the US, the EDB said.
The precision engineering cluster also dipped slightly by 0.3 per cent year-on-year in November as declines in the production of precision modules and components erased the growth in machinery and systems output.

Also displaying weakness, the general manufacturing industries contracted 0.2 per cent in November from a year earlier as declines in miscellaneous manufacturing industries offset increases in the output of food, beverages and tobacco products.

But the transport engineering cluster bucked up the manufacturing sector in November, expanded by a robust 31.9 per cent year-on-year last month. This was spurred by a 53.5 per cent growth in the marine and offshore engineering segment, which cushioned contractions in the aerospace and land transport segments.

'Shipyards continued to be occupied with existing contracts for ship repairing, shipbuilding, ship conversion and fabrication of oil rigs,' the EDB said in a statement yesterday. 'Some vessels were due for completion in the first half of next year.'

Putting on a strong recovery, the electronics sector continued its year-on- year growth in November for the fourth consecutive month, posting a 5.3 per cent growth led largely by the semiconductors segment, which grew 16.7 per cent on sustained export demand.

Despite the decent electronics output growth, economists believe that risks of an ease in electronics demand in the coming months remain in the face of an economic slowdown in major consumer market - the US - next year.

'The electronics sector is not entirely out of the woods, there's still a lot of question marks about the sustainability of its recovery,' Mr Song of CIMB-GK said. 'There's always a risk that electronics output may still be very volatile in the coming few quarters.'

Citi economist Zheng Kit Wei also believed that electronics production could remain under pressure in the coming months.

'Electronic exports have contracted for 10 consecutive months,' he said. 'Demand conditions could remain sluggish over the next quarter or so, with our composite Tech Leading Indicator pointing south.'

Pricing weakness amid tough competition could be a reason why the strength in electronics output has not translated to electronic exports, Stanchart economist Alvin Liew said.

Given the weakness in manufacturing output in October and November, economists are now expecting some moderation in the fourth quarter GDP flash estimates, which is due to be released in early January, from the 8.9 per cent year- on-year growth in the third quarter.

CIMB-GK expects the Q4 GDP year-on-year growth to come in at 7-7.3 per cent, Stanchart is predicting Q4 GDP growth at 7.6 per cent and Citi is projecting a 7.2 per cent growth.