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Nikkei Markets

Singapore factory output beats forecasts, concerns remain

Disappointing exports data, trade tensions prompt caution

Singapore's shipments of electronics fell 12.3% on year in February, declining for the third consecutive month.   © Reuters

SINGAPORE (Nikkei Markets) -- Singapore's factories performed better than expected in February but the data drew mixed views on the outlook, tempered by the likelihood of trade-related tensions and the dominance of semiconductors.

According to the Economic Development Board, production from factories and shipyards in the city-state increased 8.9% year-on-year in February, beating the consensus estimate for growth of 4.2%. The gain was slower than January's expansion of 16.9%, a downward revision from 17.9% earlier.

On a seasonally adjusted month-on-month basis, manufacturing output fell by 0.5% in February after gaining 4.7% in January.

For the first two months of 2018, manufacturing rose 13.0% from the same period last year.

Economists have been warning about a loss of momentum in Singapore's manufacturing sector, with concerns rising after data earlier this month showed after non-oil exports shrank 5.9% on-year in February, the first decline since September.

According to trade agency International Enterprise Singapore, shipments of electronics fell 12.3% on year in February, declining for the third consecutive month after growing for most of 2017.

Monday's data assuaged some concerns.

"The manufacturing sector is off to a very healthy start," said Selena Ling, head of treasury research and strategy at Oversea-Chinese Banking Corp., Singapore's second-largest lender.

While the data show there may be upside to both first-quarter manufacturing and gross domestic product growth, the escalation of trade tensions, especially between the U.S. and China, could be a dampening factor, Ling added.

ING's head of research for Asia-Pacific, Robert Carnell, was less upbeat, noting the downward revisions to January figures.

He also said the growth in electronics was due to increased production of semiconductors, which is capital intensive and provided little employment. In contrast, other segments such as info-communications, consumer electronics and data storage suffered declines, though the timing of the Chinese New Year was probably also a factor.

Distortions in Asian production and exports are common due to the Chinese New Year holidays, which fell in February this year. Last year, the celebrations began in late January, slowing production in Singapore and across the region as workers returned to their hometowns.

According to EDB, Singapore's output of electronics grew 17.4% in February from a year ago, boosted by a 26.7% increase in semiconductors. For the first two months of the year, electronics production rose 23% on-year.

Precision engineering edged 3.4% higher year-on-year in February, supported by higher demand for semiconductor-related equipment and refrigeration systems, while pharmaceuticals and chemicals increased by 15.2% and 8.0%, respectively.

The marine and offshore engineering segment remained in the doldrums, contracting 29.4% on year due to lower levels of shipbuilding and repair activity, after shrinking 21.5% in January.

Manufacturing accounts for about a fifth of Singapore's GDP.

Looking ahead, ING's Carnell said the Monetary Authority of Singapore may stand pat on policy when it releases its half-yearly monetary policy statement in April because of the threat of trade wars and recent disappointing data, including February's exports.

Singapore manages its monetary policy by letting the local dollar rise or fall against an undisclosed basket of currencies. Currently, most economists expect MAS to drop its zero-appreciation stance and allow a modest and gradual appreciation of the Singapore dollar.

--Kevin Lim

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