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Nikkei Markets

Singapore manufacturing grows at 11-month high, tech recovers

Recent data suggest economy may grow faster than expected

Singapore's economy has slowed sharply over the past year, hurt by disruptions caused by the ongoing trade war between the U.S. and China as well as weakness in the global electronics industry.   © Reuters

SINGAPORE (Nikkei Markets) -- Singapore's factories recorded their best performance in nearly a year in October as output of pharmaceuticals surged and that of electronics edged higher, strengthening signs of a recovery.

Latest data showed the city-state's manufacturing output rose 4.0% in October from a year ago, coming in well ahead of forecasts. It is the largest percentage increase since November 2018.

Even more encouragingly, production of electronics rose 0.4% year on year following two months of sharp declines, with higher output seen in areas such as info-communications and consumer electronics, computer peripherals and data storage, the Singapore Economic Development Board said.

Production of semiconductors continued to decline but the drop, at 0.9%, was much smaller than the 12.7% contraction recorded in September.

"This tech downturn is turning out to be quite shallow and we will likely see bluer skies by early next year," said Chua Hak Bin, a senior economist at Maybank Kim Eng. According to Chua, rising smartphone sales and 5G rollouts are spurring demand for chips, which account for 17% of total manufacturing in the city state.

Singapore's economy has slowed sharply over the past year, hurt by disruptions caused by the ongoing trade war between the U.S. and China as well as weakness in the global electronics industry. While a comprehensive resolution to the Sino-American dispute remains remote, there are tentative signs that the worst may be over for the electronics industry.

Just last week, industry grouping SEMI said North America-based manufacturers of semiconductor equipment posted $2.11 billion in billings worldwide in October, the first on-year increase since October 2018 and the highest level since December.

Several economists have called a bottom to Singapore's economy, especially after the publication of better-than-expected third quarter gross domestic product numbers last week. However, trade and industry minister Chan Chun Sing has described such reports as "premature."

"The journey ahead is still long. The world's many uncertainties remain. Singapore can be easily affected by the many downside risks," he said in a Facebook post last Friday.

Manufacturing accounts for about one-fifth of Singapore's GDP.

In its report, EDB said the 4.0% rise in October manufacturing was led by pharmaceuticals, which grew 29.6% on the back of higher production of active pharmaceutical ingredients.

Transport engineering declined 2.4% and chemicals, 9.6%.

On a seasonally adjusted month-on-month basis, overall manufacturing output increased by 3.4% in October, slowing slightly from September's upwardly revised gain of 4.0%.

Looking ahead, Maybank said that with the manufacturing recovery on a firmer footing, it is raising its 2020 growth forecast for Singapore to 1.8% from an earlier estimate of 1.6%.

RHB was more circumspect, warning that global demand remains weak amidst the uncertainty over U.S.-China trade deal negotiations. Nonetheless, it now expects Singapore's manufacturing to contract by just 1.5% this year instead of the 5.0% it forecast earlier.

--Kevin Lim

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