Singapore’s manufacturing output accelerated sharply in September after getting an unexpected boost from the volatile pharmaceuticals sector, likely pointing to higher economic growth in the third quarter.

Manufacturing output grew 26.2% on year in September, according to data released by the Singapore Economic Development Board Tuesday. This was higher than the 18.9% median forecast of eight analysts polled by Dow Jones Newswires as well as all the individual estimates in the poll.

 

In August, manufacturing output grew by a downward revised 7.7% from a year earlier, data from the EDB showed.

 

“The late boost from drugs should translate into an upward revision in the third quarter gross domestic product,” CIMB economist Song Seng Wun said after the data were released. “The spurt in economic activity will lead to higher wages and inflation expectations, something that the Monetary Authority of Singapore will watch very closely.”

 

Data released Monday showed Singapore's consumer prices grew at their fastest pace in 20 months, rising 3.7% on year, a tad above expectations.

 

Song expects the government to revise its July-to-September quarter GDP estimate to between 10.8% and 11% from the initial estimate of 10.3% on Oct. 14.

 

On the same day, the central bank said that it would guide the Singapore dollar higher at a “slightly” faster pace in a bid to contain inflation, an unexpected tightening move amid signs of sputtering growth in the U.S. and Europe.

 

Standard Chartered Bank economist Alvin Liew says there is a 40% chance that the Monetary Authority of Singapore will opt for further tightening at its next monetary policy review in April, most likely by a one-off appreciation of the local dollar by re-centring the policy mid-point.

 

The MAS uses the local dollar as its main policy lever as trade flows dwarf the island nation’s economy.

 

“Nonetheless, we reiterate that easing economic growth should moderate domestic inflation pressures in the next 12 months. The MAS will also be mindful of the fact that further Singapore dollar nominal effective exchange rate appreciation could encourage more inflows, adding to the risk of asset-price inflation on top of the low-interest-rate environment in 2011,” Liew said in a note to subscribers.

 

Output from the biomedical sector rose 47.5% on year, after contracting 29.1% in August. Pharmaceuticals output, the wild card of Singapore's manufacturing, rose 53.8%, compared with a 31.2% contraction last month.

 

Singapore's pharmaceutical sector is dominated by a small number of firms and output can fall significantly when plants change product lines or close for maintenance. Conversely, it can rise dramatically if a batch of high-value drugs is produced.

 

Excluding the volatile biomedical sector, manufacturing output in September increased by 20.4% on year.

 

Electronics output grew 28% from a year earlier, fueled by a 67.9% growth in semiconductors on strong demand for smart phones and media tablets.

 

Seasonally adjusted manufacturing output grew 5.1% in September from a month earlier, compared with a revised 6.5% contraction in August.

 

The median forecast of seven economists polled was for a 1% on-month contraction in seasonally adjusted terms. The data also beat individual forecasts, which ranged from a 3.5% expansion to a 10.3% contraction.