27 June 18 The Business Times by CHIA YAN MIN
SINGAPORE'S factory output continued to outperform in May, defying expectations of a slowdown in manufacturing.
But economists say this strong showing is unlikely to last - not least because of a baffling divergence between rising electronics production and shrinking exports in recent months.
Manufacturing growth was widely expected to moderate this year from last year's high base, as demand eases and global trade tensions take their toll.
The sector, which makes up a fifth of the economy, was a key growth driver last year, buoyed by strong global demand for electronic gadgets. But this strong showing showed no sign of easing in May. Output rose 11.1 per cent from the same month a year earlier, beating April's 9.1 per cent rise and also blowing past economists' expectations of a 10 per cent increase.
Electronics - which makes up a third of Singapore's manufacturing output - expanded 17.1 per cent, led by semiconductor production which posted robust growth of 26.9 per cent.
This was the 27th straight month of expansion in electronics output.
The volatile biomedical sector was also a key contributor to growth, expanding 17.7 per cent in May, up from 8.2 per cent in April.
If biomedical manufacturing were excluded, overall manufacturing output would have grown a smaller 9.8 per cent year-on-year.
Other segments including chemicals, general manufacturing and transport engineering also expanded in May, according to data from the Economic Development Board (EDB) on Tuesday.
But growth in the precision engineering cluster - whose performance is typically closely tied to electronics - was almost flat at 0.8 per cent.
UOB economist Francis Tan said last year's high base - especially in electronics - could point to a slower pace of manufacturing expansion in the months ahead.
In addition, non-oil domestic exports of electronic products have been contracting for six straight quarters, Mr Tan noted. "There is no reason to keep producing electronic products - which are intermediate goods and of no use to the end-consumer in their current state - without exporting them."
Maybank Kim Eng economists Chua Hak Bin and Lee Ju Ye suggested that the divergence between electronics exports and production might be explained by orders booked in Singapore but produced and shipped from abroad.
An alternative, "more cautious" interpretation could be that firms are building up inventories in anticipation of higher future demand, they noted. "The risk is that future demand could fall short of expectations, leading to an eventual sharp correction."
UOB's Mr Tan also warned of potential spillovers from escalating global trade tensions, which could affect Singapore manufacturers by weighing on export orders and business sentiment.