SINGAPORE manufacturing output contracted for the second month in a row in December after a big drop in pharmaceuticals production, government data showed on Friday.

Industrial output fell 1.7 per cent last month compared with a year earlier, sharper than the revised 0.5 per cent shrinkage in November, figures from the Economic Development Board (EDB) showed.

On a seasonally adjusted month-on-month basis, production declined at a preliminary 4.7 per cent, after a gain of 6.4 per cent in November.

The decline in December, which was within analysts' forecasts, was due to a sharp production fall in the volatile biomedicals cluster which covers pharmaceuticals and medical technology, EDB said.

Production of active pharmaceutical ingredients plunged 36 per cent as plants were shut down for maintenance and a different product mix was introduced, while medical technology declined 18 percent as equipment deliveries to the US market decreased, it said.

'Growth recorded by the other clusters was offset by a decline in the biomedical manufacturing cluster,' EDB said.

Mr Song Seng Wun, a regional economist with CIMB-GK Research in Singapore, said that if biomedicals were excluded, manufacturing output in December would have risen 7.3 per cent.

He said the biomedical sector is expected to rebound this year as pharmaceutical companies expand capacity, and the economy gets a boost from other sectors like transport engineering, which covers the manufacture of oil rigs.

EDB said electronics output growth slowed to 3.3 per cent in December from 6.1 percent in November, weighed down by a 16.5 per cent drop in computer peripherals and a 15.1 per cent fall in consumer electronics.

While output in semiconductors grew 12.6 per cent, this was slower than the 19.6 expansion in November, the EDB figures showed.

Transport engineering output rose 18 per cent in December, boosted by the completion of existing contracts in ship repair, shipbuilding and conversion, and oil rig fabrication, EDB said.

Song noted some 'encouraging signs' of a recovery in the technology segment, but said it remains vulnerable to easing demand in the United States amid fears of a recession there.

He said he is hopeful that pharmaceuticals will rebound, which, coupled with a good showing from transport engineering, 'gives us some room for comfort that overall manufacturing output for 2008 could still be within the four to five per cent range, although slower than the 5.8 per cent in 2007'.

DBS Group Research, whose forecast for a 1.7 per cent December drop in output matched the government's preliminary figure, said 'it is increasingly unlikely' that Singapore's 2007 GDP growth will exceed the preliminary official estimate of 7.5 per cent.

With the US a major market for Singapore's exports, the republic would be hit by a US economic slowdown, local newspapers on Thursday quoted Prime Minister Lee Hsien Loong as saying on a visit to France.

Economist David Cohen of research house Action Economics said Singapore's economy should withstand the impact of a US recession.

'That would affect export demand globally and Singapore would feel some fallout but it doesn't have to devastate exports given that there are some ongoing strengths elsewhere, notably China,' he said.

Cohen maintained his forecast for GDP to grow 5.0 this year. -- AFP