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Manufacturing growth slows further in Aug
25-09-2010, 01:16 PM.
Post: #1
Manufacturing growth slows further in Aug
Sep 25, 2010
Manufacturing growth slows further in Aug

Q3 growth likely to slow significantly, technical recession could loom
By Fiona Chan, Assistant Money Editor

MANUFACTURING growth slowed last month to its lowest level in nine months, coming in below economists' expectations and fulfilling predictions that the economy's growth momentum is losing steam.

Factories produced just 8.1 per cent more output last month than a year ago, and 6.3 per cent less than in July, according to the Economic Development Board (EDB) yesterday.

This means that overall economic growth in the third quarter is likely to show a significant deceleration, said Bank of America Merrill Lynch's director of global research Chua Hak Bin.

After soaring 17.9 per cent in the first six months of the year, the growth may moderate to 10 per cent in the third quarter, said Dr Chua. This would imply a contraction of about 19 per cent from the second quarter.

And if the volatile pharmaceutical segment pulls back again in the fourth quarter, Singapore may experience a technical recession in the second half of the year, with two consecutive quarter-on-quarter contractions, said DBS economist Irvin Seah.

Manufacturing makes up about a quarter of the economy, while services account for two-thirds. But a slowdown in the sector would also pull down several services industries that are dependent on the sector's health, including wholesale trade, transport, and professional and financial services, said Barclays Capital economist Leong Wai Ho.

Taken together, the services activities that rely on manufacturing account for 10 per cent to 15 per cent of the economy, he said.

The main drag on last month's manufacturing was again pharmaceutical products. Excluding the biomedical segment, manufacturing output would have grown 24.8 per cent last month from a year ago, said the EDB.

Mr Leong said the fall in drugs production was steeper than expected and the segment is likely to continue underperforming in the months ahead.

'According to industry sources, the pharmaceutical batches currently scheduled for production in Q4 (fourth quarter) will contain a larger proportion of ingredients for non-patented drugs and generics, which are significantly lower in value,' he said.

'In addition, we are now entering the traditionally weaker Q4, when drug plants typically initiate maintenance-related shutdowns.'

All other manufacturing clusters held up well last month. Manufacturers accelerated their output in electronics, chemicals and transport engineering, while maintaining double-digit growth for the precision engineering segment.

However, there are hints that the healthy global electronics demand, which drove the manufacturing sector to unusually strong double-digit growth in the first half of the year, is waning, some economists said.

Although electronics output grew at a faster pace of 32.8 per cent last month from a year earlier, 'we are now seeing more signs of a slowing global electronics cycle', warned Mr Leong.

'For instance, industry bellwethers such as Samsung, Foxconn and Intel have noted weaker-than-expected demand for PCs in mature markets in August and warned of a glut of memory chips in 2011.'

This could have a significant impact on Singapore, given that electronics output directly accounts for more than 5 per cent of the economy, he added.

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