Factory output suffers largest drop in 10 months
Bryan Lee
Tue, May 27, 2008
The Straits Times
MANUFACTURERS in Singapore suffered their biggest slump in 10 months with a surprise fall in output last month.

Industrial production declined by a sharp 5.7 per cent - adding to signs that the United States-led global slowdown is starting to hurt factories in the Republic, analysts said.

The contraction snapped an impressive start to the year by local manufacturers, which had been accelerating production to hit March's 18.1 per cent output increase.

Last month's poor showing was led by the two biggest segments of the local manufacturing scene.

Sharp falls in electronics and drug output outweighed a robust 15.1 per cent increase in rig- and ship-building.

'This is further evidence that the slowdown in the US is steadily spreading to the rest of the world,' said Citigroup economist Kit Wei Zheng.

'We expect output and exports, especially in electronics, to remain soft for the rest of the year on tepid global demand, exacerbated by the lagging impact of the Singapore dollar's appreciation.'

Yesterday's weak data caught almost all private-sector economists in Singapore by surprise.

A Bloomberg News poll of 11 analysts found a median estimate of 6 per cent growth. Just one, Standard Chartered Bank's Mr Alvin Liew, predicted a contraction - of 4 per cent.

Throwing off the forecasters was the volatile pharmaceutical industry, whose unpredictable plant shutdowns between production cycles typically bamboozle even the most prescient of oracles.

This time round, a different mix of active drug ingredients produced caused output to shrink 27.9 per cent, said the Economic Development Board, which compiles the monthly factory data.

By contrast, pharmaceutical output was surging at above 20 per cent rates in the first quarter, hitting 101.8 per cent in March.

But wild drug swings notwithstanding, the overall mood at local factories is negative.

'The sharp decline although exaggerated by the steep fall in the biomedical sector, does signal an overall moderation in activity,' wrote Goldman Sachs analysts Mark Tan and Michael Buchanan.

Electronics, still the mainstay of manufacturing, declined 5.1 per cent, dragged down by a 7.4 per cent fall in chip production and a 25.1 per cent reduction in infocommunication and consumer electronics output.

'We expect industrial production growth to remain soft in the coming months as the cyclical electronics sector is likely to extend its contraction given its vulnerability to weakening global demand,' said United Overseas Bank economist Ng Shing Yi.

Citigroup's Mr Kit added that a downward revision last Friday of the official forecast for domestic exports this year suggests that manufacturing numbers 'won't look pretty for the year'.

Goldman's Mr Tan and Mr Buchanan said that fears over slowing growth could even restrain further monetary measures to fight inflation.

While rising prices should still prompt the Monetary Authority of Singapore to keep monetary policy tight, fears over slowing growth may be enough to keep it from moving to allow for a faster Singdollar appreciation at its next scheduled policy statement in October, they said.



'We expect output and exports, especially in electronics, to remain soft for the rest of the year on tepid global demand, exacerbated by the lagging impact of the Singapore dollar's appreciation.'
MR KIT, on the weaker outlook

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