Factory output rises 2.1% in May

A SURGE in drugs and electronics output gave factory production a surprise lift last month, raising hopes that the overall economy will end up having a robust second quarter.

Factory output rose 2.1per cent in May over a year earlier, beating economists' forecasts that production would stay flat.

Manufacturing also grew 1.2per cent in May from April, despite factories producing more in April than had previously been thought, the Economic Development Board (EDB) said yesterday.

EDB data showed April's output rose 5 per cent from last year, up from an earlier estimate last month of a 4.7 per cent increase.

The rebound in manufacturing comes after the sector shrank 6.8 per cent in the first three months of the year over a year earlier.

Citi economist Kit Wei Zheng estimates factories produced 8.1 per cent more on average in April and May compared with the average between January and March.

Coming on top of other positive data, May's factory numbers suggest the economy is "set for a sizeable sequential expansion" in the second quarter, which ends on Sunday, he said.

Recent upbeat data includes a jump in sea cargo handling and non-oil re-exports, which bodes well for wholesale trade and transport and storage services, as well as strong loan growth and high trading volumes on the Singapore Exchange, which could boost financial services, Mr Kit said.

Economists polled last month expect the economy to grow 1.5 per cent in the second quarter over the same period last year.

Bank of America Merrill Lynch economist Chua Hak Bin is tipping 2.3 per cent growth, led by services and buoyed by a "weak" recovery in manufacturing.

He expects June's manufacturing numbers to be feebler than the previous two months due to a high base last year.

Last month's factory production was lifted mainly by biomedical output, which jumped 22.8 per cent over a year ago - the third consecutive month of double-digit growth. Excluding this cluster, overall factory output would have fallen 2.4 per cent.

Electronics makers also produced 4.3 per cent more output last month from a year ago, partly due to high regional demand for electronics components.

But economists warn that the sector's outlook for the second half of the year is still nebulous.

"We doubt the current recovery in electronics production is sustainable unless final demand picks up firmly," said Credit Suisse economist Michael Wan.

The volatile biomedical segment, which has driven factory activity recently, should also grow more slowly this year, he said.

OCBC economist Selena Ling noted that besides drugs and electronics, the other key clusters - chemicals, precision engineering and transport engineering - "remain in the doldrums".

Chemicals production dipped 1.9 per cent in May from a year ago, while precision engineering fell 6.2 per cent and transport engineering declined 13.2 per cent.

"With the recent financial market volatility and haze conditions... the risk is that the expected improvement in second-quarter growth momentum may disappoint rather than surprise on the upside," Ms Ling added.

fiochan@sph.com.sg

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