SINGAPORE (Apr 24): Singapore’s factory output staged a surprising rebound with a 16.5% year-on-year growth in March, following a surge in biomedical manufacturing amid the Covid-19 pandemic. The increase comes despite a continued decline in its linchpin electronics and general manufacturing sectors.

Excluding the biomedical sector, output remained unchanged, according to data released on Friday by the Singapore Economic Development Board (EDB), a government agency under the Ministry of Trade and Industry (MTI). 

The latest data marks the republic’s fastest year-on-year growth since the +20.5% recorded in August 2017. Interestingly, it is a reversal from February’s 1.1% contraction which was deemed the biggest decline in Singapore’s factory since 1983.

On a seasonally adjusted month-on-month basis, manufacturing output surged 21.7% in March – a significant deviation from the 22.1% contraction seen in February. Excluding biomedical manufacturing, March’s output was up 2.5%.

Specifically, the surge was heralded by a 91.4% expansion in the biomedical sector. This comes on the back of a 126.6% increase in pharmaceutical output following higher production of active pharmaceutical ingredients and biological products. A 6.3% increase in medical technology production also boosted the sector.

Precision engineering logged the next highest output growth of 21.2% following a 28.7% expansion in its machinery & systems segment from greater production of semiconductor equipment.

Transport engineering followed suit increasing 7.6%, on the back of an 11.9% expansion in its aerospace segment following more maintenance to commercial airlines. The sector also benefitted from a 15.2% increase in land transport operations.

A further lift to the sector was mitigated by a 0.7% contraction in its marine and offshore engineering segment following lower operations of offshore projects.

The final sector to record an expansion was chemicals which grew a smidgen 0.8%. This is due to increases in petroleum refining throughput (+30.9%), specialties production (+8.8%) and other chemicals (+5.9%).

Meanwhile, electronics output widened its decline to 9.2%, with all sectors with all sectors within the cluster recording declines. 

The general manufacturing cluster too remained contractionary with a 7.9% decline, with all segments recording output declines. Specifically, the dip was led by food, beverage & tobacco (-9.8%), printing (-7.7%) and miscellaneous printing (-5.2%).

Looking at the data, Maybank Kim Eng economists Chua Hak Bin and Lee Ju Yu say March’s positive figures brings 1Q20 manufacturing levels to +6.6% - a significant deviation from the -0.5% flash estimate.

The increase, particularly led by expansions in March comes as the month “had not been significantly affected by Covid-19”, notes EDB.

United Overseas Bank (UOB) economist Barnabas Gan chimes in that the double-digit expansion follows a low base in March 2019 – when the global production levels took a hit from the trade war tensions between the US and China.

Both Chua and Gan are now looking at a lift in Singapore’s 1Q20 GDP outlook, with Chua calling a -0.5% dip and Gan penciling in -0.8%. This is a deviation from the -2.2% advanced estimate released previously by the Ministry of Trade and Industry (MTI).

However, the months ahead is likely to pose rocky production levels cautions EDB.

“[A] more pronounced impact [on factory output] is likely to be seen from April 2020 onwards due in part to the implementation of the ‘circuit breaker’ measures,” the agency observes.

Gan points to other macroeconomic factors that may potentially roil Singapore’s factory output. For instance, the strong growth in the biomedical cluster could swing in the opposite direction in the months ahead, as the low-base effect dissipates, he says. 

Aside from this, he says the lower oil prices may drag Singapore’s transport engineering and marine and offshore engineering clusters.

“Given the plunge in oil prices (Brent prices fell 47% year-to-date at US$21.6/bbl) at this juncture, it may be a signal that further softness in offshore projects and shipbuilding & repairing activities may be on the cards,” notes Gan.

Other challenges he forsees are the on-going disruptions to global supply chains that has affected consumer demand. 

Referencing the International Monetary Fund’s (IMF) forecast of Asia’s growth grinding to a halt for the first time 60 years, Gan expects Singapore’s trading partners to have less incentive to trade amid a slowing economy. 

Collectively, the factors point to a dim prognosis for Singapore’s industrial production. And so, Gan predicts factory output contracting 3.8% this year.