Singapore: Manufacturing Performance Beats Expectations

Consensus Forecasts

Manufacturing production surprised on the upside in May after reporting a 2.1% (y-o-y) expansion on the back of a surge in biomedical output, although this was somewhat slower than the upwardly revised 5.0% (y-o-y) rise in April. The biomedical manufacturing cluster soared by 22.8% from a year earlier, with the pharmaceuticals segment jumping by 25.2% on account of higher production for active pharmaceutical ingredients. However, once the biomedical sector is stripped out of the calculations, overall manufacturing output dropped by 2.4% (y-o-y) compared to a fall of 2.7% in April. That said, there are still some encouraging signs from the May report since the electronics sector continued to improve, rising by 4.3% (y-o-y) as semiconductor output grew by 11.8%. Two relatively strong months of growth in manufacturing output signals a possible rebound in Q2 GDP growth. However, June activity will likely weaken as a result of the negative economic disturbance caused by high pollution levels currently engulfing the city state. Indeed, the severe haze caused by drifting smoke from forest fires in Indonesia is thought to have had a larger economic impact than a similar incident seen 16 years ago (when Singapore experienced its worst air pollution crisis which hit tourism and increased business costs). Growth forecasts for 2013 have softened slightly to 2.2% this month. Elsewhere, inflation edged up slightly by 1.6% (y-o-y) in May following a 1.5% rise in April. The main drivers were higher prices for food and housing which offset lower transport costs.

On a more negative note, total trade slipped to -1.4% (y-o-y) in May, compared to a rise of 1.9% in April. Non-oil domestic exports, for instance, fell by 4.6% due to a 13.2% contraction in electronic shipments.

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