Factories churn out 40% output growth

[Musicwhiz]

Dec 25, 2010
Factories churn out 40% output growth
November surge beats analysts' estimate; 15% full year growth likely
By Robin Chan

MANUFACTURING is continuing its strong comeback as factory output surged 39.8 per cent last month from a year earlier, its fastest rate in six months.

Last month's figure beat the consensus estimate among analysts of a 32.8 per cent gain by a fair margin.

Compared with the previous month's figure, a key measure of momentum, manufacturing also gained ground, up 1.1 per cent in seasonally adjusted terms from October, the third straight month of growth.

The volatile drugs sector again lifted the overall figure, with a 189 per cent year-on-year surge last month.

Electronics output also jumped 23.1 per cent on the back of strong semiconductor production, boosted by the continued demand for consumer electronics, said the Economic Development Board, which released the report.

Excluding the biomedical manufacturing sector, factory output still rose a healthy 16.1 per cent year-on-year.

'The economy has re-accelerated in the fourth quarter,' said Dr Chua Hak Bin, an economist at Bank of America Merrill Lynch. He expects full year growth to come in at 15.1 per cent, in line with the Government's full year forecast of about 15 per cent growth.

DBS economist Irvin Seah said: 'Full year growth of 15 per cent is more or less in the bag. There is a possibility that it may come in slightly better than that.'

The key performers this year have been electronics and pharmaceuticals.

From January to last month, electronics production rose 38.5 per cent from the same period in the previous year. Pharmaceuticals output jumped by 56.7 per cent.

'These two segments make up nearly 50 per cent of the value-add for Singapore's manufacturing sector,' said Standard Chartered economist Alvin Liew.

All manufacturing sectors experienced double-digit growth, apart from the transport engineering sector, which shrank 5.8 per cent from November last year.

Mr Liew noted that one of the weak spots was the marine and offshore engineering segment, which contracted again last month by 11.3 per cent from a year earlier, and has now shrunk by 16.5 per cent in the first 11 months of the year.

'However, with the outlook of oil prices looking firmer next year, and as oil prices just went above US$90, the prospects for this sector may be a bit brighter next year, although the spectre of the offshore oil rig accidents this year may continue to add downside for the industry,' he said.

An earlier feared drop in manufacturing activity has now given way to a belief that the sector instead faces moderation to a sustainable pace of growth, economists said.

OCBC economist Selena Ling said: 'So far, the weakness we have seen in manufacturing has been quite sporadic. It does not suggest there is an overall demand weakness across the board. We had a soft patch in the third quarter, but it doesn't seem like the slowdown will last now.'

HSBC economist Leif Eskesen said: 'While the hard-to-call pharmaceuticals production should logically see some lull in activity after months of rapid acceleration, the lingering strength in the less hyper electronics sector tells us that the overall production will be, at worst, stepping into consolidation phase in the immediate term.'

But even with the positive momentum in manufacturing output, economists said the key driver of the economy next year will be the service sector.

chanckr@sph.com.sg