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Economy

Singapore factory output tops forecasts, more sectors rally

Growth broadens beyond electronics suggesting momentum could hold

SINGAPORE (Nikkei Markets) -- Singapore's manufacturing output rose for the 13th straight month in August, beating expectations as the laggard pharmaceutical industry rallied while demand for medical devices increased.

The Singapore Economic Development Board said on Tuesday the city-state's factories and yards produced 19.1% more goods in August as compared to a year ago, exceeding the forecasts of most economists even though growth slowed slightly from the 21.2% pace recorded in July.

Electronics was the star performer once again with output rising 38.7% from a year ago, helped by rising shipments of semiconductors and computer peripherals.

The medical technology segment saw output jump 30.8% over the same period last year, while pharmaceuticals, which had been on a downtrend since the start of the year, surprised with a 23.1% increase in output.

"The medical technology segment recorded higher export demand for medical devices while the pharmaceutical segment saw higher production of biological products and new pharmaceutical ingredients being produced," EDB said in a statement.

On a seasonally adjusted month-on-month basis, Singapore's manufacturing output increased by 0.6% in August, EDB added.

"The domestic manufacturing recovery has developed beyond just solely an electronics story," said Selena Ling, head of treasury research and strategy at Oversea-Chinese Banking Corp. "This lends credence to our view that the engines of growth are broadening and bodes well for growth momentum going into end-2017 and into 2018."

The stronger-than-expected manufacturing performance in July and August indicate Singapore's third quarter growth could come in above the 3.1% median forecast of economists polled by the Monetary Authority of Singapore earlier this month, she added.

Singapore's economy began recovering in the fourth quarter of 2016 amid a turnaround in the global electronics industry, and the government expects overall growth this year to be the fastest in three years at between 2% and 3%.

However, the recovery in manufacturing has been uneven with sectors such as offshore and marine engineering continuing to shed thousands of jobs due to low oil prices that have hurt demand. Overall, manufacturing accounts for about one-fifth of Singapore's gross domestic product.

According to EDB's data, the marine and offshore engineering segment contracted 15.8% in August from a year ago due to lower levels of rig-building, shipbuilding and repair. Year-to-date, output from the segment has fallen by 22% compared to the first eight months of 2016.

The land transport and aerospace segments performed a lot better, rising 31.1% and 27.4%, respectively, boosted by higher production of motor vehicle parts and an increase in repair and maintenance work on commercial airlines.

Francis Tan, an economist at United Overseas Bank, said Singapore's transport engineering cluster has now grown for three consecutive months, thanks to the strong performances in the land transport and aviation segments that have offset the continued weakness in offshore and marine.

He warned, however, that the surge in the manufacturing sector continues to be heavily reliant on electronics, whose growth could weaken due to the already sharp increases in output over the past year and slower capital expenditure in China.

"Although we remain optimistic in the continuing growth for the electronics and precision engineering clusters in 2017, we believe the double-digit growth for semiconductor production may slow into the single digits as we proceed towards the end of the year and on to 2018," he said.

--Kevin Lim

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