Things have been looking up for Singapore’s factory output, which expanded 24.2% year-on-year in September. This follows strong demand for biomedical products as well as a growth in semiconductor production.
Excluding the biomedical cluster, the increase in output narrowed to 8.5%, according to data released by Singapore’s Economic Development Board (EDB), a government agency under the Ministry of Trade and Industry (MTI).
September’s performance an improvement from the 13.7% growth seen in August.
See also: Singapore's factory output surprises with 13.7% increase in August
It is also significantly better than the 2.5% predicted by market watchers and OCBC Bank’s forecast of a 3.2% expansion, says Selena Ling who heads the bank’s treasury research and strategy division.
The latest showing is among the metric’s strongest year-on-year showing since the 25.2% growth rate seen in December 2011.
On a seasonally adjusted month-on-month basis, manufacturing activity surged by 10.1% - marginally poorer than the 13.9% registered in August. Excluding biomedical manufacturing the growth in September’s output plunged by 1.6%.
"Manufacturing is exceptionally resilient in this pandemic recession as supply chains and trade flows faced only temporary disruptions," say Maybank Kim Eng economists Chua Hak Bin and Lee Ju Ye of the latest numbers.
They add that Singapore has benefitted from the “pandemic-induced demand” for semiconductors, pharmaceuticals and medical technology.
The biomedical cluster – a key driver of Singapore’s factory output this year despite the volatility it has been facing – posted an impressive 89.8% year-on-year growth in output in September. This follows a 113.6% increase in pharmaceutical output, thanks to higher output of active pharmaceutical ingredients and biological products.
A 15.0% increase in export demand for medical technology instruments provided a further lift to the sector’s performance.
Electronics followed suit, with a 30.1% growth in output. This follows a 37.4% growth in the semiconductors segment due to demand from cloud services, data centres and the 5G market.
Chemicals saw output improve by 0.4% thanks to demand from specialties (+25.2%) and other chemical products (+6.7%).
Still, the cluster was burdened by declines seen in its petrochemicals (-7.3%) and petroleum (-25.7%) segments, which were affected by plant maintenance shutdowns.
The output of the other clusters came in the red in September, with transport engineering registering the biggest year-on-year contraction of 35.8%.
This was led by declines to the marine and offshore engineering (-40.9%) and aerospace (-44.0%) segment as the order intake took a hit from the weak global oil and gas market as well as the travel restrictions imposed to curb the spread of coronavirus infections.
A further contraction in the cluster was mitigated by a 35.1% growth to its land segment.
Output for general manufacturing similarly fell by 8.0% due to broad based declines across its segments. The strongest decline of 16.7% was seen in its printing segment which has been facing lower demand since the Covid-19 pandemic broke out.
The cluster was further burdened by a 6.1% dip in the food, beverage and tobacco segment, as well as an 8% slip in the output of construction-related products which have been affected by a slow resumption of activities.
Meanwhile, the precision engineering segment reversed out of the green to plunge 1.5% in September. This is the result of 3.8% contraction in the precision modules and components segment which was affected by lower production of optical products, as well as dies, moulds, tools, jigs and fixtures.
The cluster was further burdened by a 0.7% dip to its machinery and systems segment which was affected by lower output of industrial process equipment, refrigerating & air-conditioning equipment and mechanical engineering works.
Looking at the latest numbers, economists such as Sin Beng Ong from JPMorgan expect manufacturing to lead Singapore’s recovery for 3Q2020.
Ong is looking at a growth rate of 40% quarter-on-quarter for 3Q2020 ended September. Meanwhile, he expects a 2% quarter-on-quarter expansion in 4Q2020 ending December as travel-related and other ancillary services remain lacklustre.
“Barring heightened or protracted uncertainties arising from the upcoming US elections for instance, and/or major economies going back into lockdowns to contain the resurgent Covid waves, it looks like the domestic manufacturing engine should be the key outperformer for the rest of the year for the Spore economy,” chimes OCBC’s Ling.
A risk she flags is the re-election of US president Donald Trump, who may possibly double down on China in terms of trade and technology. This would upset general business and consumer confidence, and thereby affect the global and regional growth recovery prospects going into 2021, adds Ling.