Singapore’s manufacturing output has expanded by 30% y-o-y in May, marking the seventh consecutive month of growth, and the greatest expansion since the Great Recession, note CGS-CIMB Research economists Terence Lee and Michelle Chia.
The figure, which exceeded the median estimate of a 24.1% y-o-y growth according to Bloomberg estimates, is the fastest growth seen by the republic since November 2010.
The surge was due partly to the low base in May 2020, brought about by the circuit breaker measures that were implemented from April to June 2020, says the Singapore Economic Development Board (EDB), a government agency under the Ministry of Trade and Industry (MTI).
On a seasonally adjusted month-on-month basis, manufacturing output increased by 7.2% in May.
To OCBC Bank economist Howie Lee, the figure came in close to his estimate of a 29.6% y-o-y growth. The seasonally adjusted m-o-m growth easily beat expectations of a 0.5% contraction, he adds.
Excluding biomedical manufacturing, output grew 29.0% y-o-y and 9.8% m-o-m.
On a three-month moving average basis, manufacturing output was up by 12.4% y-o-y and 7.2% m-o-m in May.
All sectors in May saw broad-based growth, something which has not been seen since April 2019, according to UOB Global Economics and Markets Research economist Barnabas Gan.
Given the “surprisingly strong industrial production momentum”, Gan has upgraded his manufacturing growth outlook to 8.0% from 5.5% previously in 2021.
“This would also inject upside risk to Singapore’s full-year growth of 5.5% in 2021. The risk to our outlook appears to be balanced; upside risks to our outlook will include a quicker-than-expected rollout of the Covid-19 vaccine, resulting in an accelerated recovery back to pre-Covid-19 levels,” he says.
To OCBC’s Lee, the overall positive output carries a “healthy dose of optimism” as it shows that Singapore’s manufacturing strength is increasingly broad-based and “not entirely reliant on the twin pillars of electronics and biomedical clusters,” he says.
In fact, with the slight exception of the electronics cluster, all other clusters appear to have rebounded from April’s industrial output disappointment. This is no mean feat, given that Singapore was imposed with Phase 2 (heightened alert) restrictions last month. It shows domestic manufacturers are more prepared for pandemic contingencies and bodes well for the local manufacturing scene for the rest of the year,” he adds.
To this end, Lee has also upgraded his full-year 2021 growth forecast for manufacturing output to 7% y-o-y from 6% previously, with year-to-date (y-t-d) performance currently at 12.5% y-o-y.
“We now expect broad-based strength across all clusters to drive Singapore’s industrial activity higher, in addition to our previous assessment that continued strong demand for electronic and biomedical goods may continue to lift Singapore’s industrial output,” he writes.
“We see 2H2021 manufacturing output expanding a moderate 1.4% y-o-y in large part due to the high base from last year, which is a remarkable feat considering industrial activity rose 11.2% y-o-y in 2H2020,” Lee adds.
He has also upgraded his full-year 2021 GDP growth forecast from 6.0% to 6.3% y-o-y.
The precision engineering cluster saw output expanding 58.6% y-o-y, with a 73.4% increase in the machinery & systems segment due to the higher production of semiconductor equipment to cater to higher investments in the global semiconductor industry.
The precision modules & components segment rose 30.4% on the back of increased production of optical products, metal precision components and plastic precision products.
Output for the transport engineering cluster expanded 44.0% y-o-y with overall growth across the marine & offshore engineering segment and the aerospace segment with y-o-y growths of 71.0% and 21.3% y-o-y respectively.
Biomedical manufacturing saw a 35.6% y-o-y increase in output due to the higher export demand for the medical technology segment, which saw a 47.6% y-o-y growth. The higher production of active pharmaceutical ingredients and biological products contributed to the 38.0% y-o-y growth in output for the pharmaceutical segment.
Output in general manufacturing rose 27.8% y-o-y due to the miscellaneous industries and printing segments rising 96.1% and 8.7% y-o-y respectively.
The food, beverage & tobacco segment conversely fell 1.0% y-o-y due to lower production of milk products on the back of weaker export demand.
Output for the electronics cluster expanded 23.2% y-o-y with all segments registering a higher level of production, in particular the semiconductors segment.
Chemicals output was up by 16.2% y-o-y with all segments recording higher output growth.
UOB’s Gan says he expects Singapore’s electronic and precision engineering clusters to continue supporting the overall manufacturing sector on the “back of global growth and a positive external environment”.
“The electronic cluster has been the key performer in the first five months of 2021 at +22.9% y-o-y. Similarly, the precision engineering cluster also surged 22.7% y-o-y year-to-date, led by the demand for semiconductors and its related products. Separately, the economic recovery seen in Singapore’s key trading partners amid a global economic recovery environment should also support the chemicals cluster for the year ahead,” he writes.
On the other hand, as Covid-19 risks across Asia remain, Gan notes that transport-related demand “may continue to cap growth”.
CGS-CIMB's Lee and Chia have also upped their GDP growth forecast for 2021 to 6.6% from 5.3%. While they did not give a figure for figures on the retail sales index (RSI), Lee and Chia expect the RSI to improve m-o-m moving forward on the back of a potential easing of further restrictions in mid-July.
They have also kept their view for a "slight upward adjustment" in the S$NEER slope in April 2022.
Maybank economists Chua Hak Bin and Lee Ju Ye predict a flash GDP growth for the 2Q2021 to come in at +12.8% versus the +1.3% expansion in the 1Q2021.
"There are upside risks to our full year GDP growth forecast of +6.2%, given the stronger than expected manufacturing – which was the only sector to avoid a recession last year," they write.
"Construction and services, however, will likely remain below pre-pandemic levels in 2Q21, although the low base last year will result in a strong jump in year-on-year terms. MTI will likely raise its full year 2021 GDP growth forecast to +6% to +7% in August, from the current range of +4% to +6%," they add.
The Singapore research team at RHB Group Research says it expects the growth in manufacturing IPI to ease slightly in June before moderating further in the 3Q2021 as the low base effect in 2020 fades.
That said, it continues to anticipate "robust growth" in the precision engineering and electronics clusters driven by demand from the global semiconductor industry and the 5G market.
On the back of the global vaccination rollout, economic activities are slated to increase gradually as we enter into the second half of 2021.
"As such, growth in the external demand should continue to support production in other manufacturing clusters. However, output production from the transport engineering cluster is expected to lag as the aerospace segment would still be affected by the halt in broad international travels," writes the team at RHB.
Photo: Tiong Woon
