S'pore Nov output slide weighs on GDP outcome

Singapore

SINGAPORE now faces downside risks to its fourth-quarter and full-year gross domestic product (GDP) growth, with the manufacturing sector having fallen deeper into contraction mode in November (see infographic).

Contrary to expectations, factory output declined 2.8 per cent year-on-year - the third consecutive month of contraction and the sharpest since June 2013's 4.7 per cent drop.

Surprised by the cheerless performance, private-sector economists said the Republic's full-year GDP growth could come under the government's projection of "around 3 per cent".

Singapore's advance GDP estimates - both for the fourth quarter and 2014 - are scheduled for release on Jan 2.

The 17 economists polled by Bloomberg before the Singapore Economic Development Board (EDB) released the numbers on Friday had been expecting industrial production to rise by 0.3 per cent.

Excluding the volatile biomedical sector - which contracted 1.1 per cent last month after October's 22.3 per cent surge - output would have fallen by a larger 3.1 per cent. This was due to declines in the chemicals (-6.9 per cent), transport engineering (-5.9 per cent), and general manufacturing (-10.2 per cent) clusters.

Noting the impact of plunging oil prices on petroleum, CIMB economist Song Seng Wun told The Business Times: "The petroleum index was at 64.3 in November - that's the lowest it has been since September 1989, when it was 61.6. Oil prices have had their impact, as levels started dropping around July this year."

Still, both he and Mizuho economist Vishnu Varathan say plant maintenance closures could also have been at play.

Mr Varathan said: "We probably will see some of the oil price drops coming through, but November is arguably quite early to see the impact - (the drop in petroleum was) probably due to scheduled plant shutdowns. We will likely see more of this happening in March and April next year."

While output rose in the electronics and precision-engineering clusters, this was not enough to offset the broad-based declines elsewhere. The electronics cluster, which retains the largest weight of 33.4 per cent on the industrial production index, expanded 1.2 per cent; output of the precision engineering cluster rose 1.4 per cent.

EDB said that after adjusting for seasonal factors, industrial production contracted 1.4 per cent month-on-month in November. Excluding biomedical manufacturing, output would have increased 1.6 per cent.

The month-on-month contraction surprised private-sector economists as well; they had been expecting factory output to rise 0.4 per cent in November from October, on a seasonally-adjusted basis.

October's year-on-year factory output performance was also revised to a 0.2 per cent contraction, from an earlier preliminary figure of a 0.2 per cent expansion.

Economists from CIMB, Mizuho and UOB agreed that last month's disappointing showing has implications for GDP growth.

UOB's Ho Woei Chen wrote in a note: "With the weaker-than-expected November (performance) and the slight downward revision to October industrial production, there is downside risk to our full-year GDP growth forecast of 3.2 per cent."

Still, Mizuho's Mr Varathan stressed that although November's figure "chips off some of full-year growth", it does not dramatically change Singapore's growth outlook.

"It's true we'll see a softer figure - 2014 GDP growth could be around 2.8 per cent. But the big picture hasn't changed. This year's growth has been undermined by some global headwinds. And while next year looks a bit tentative, too, we don't want to get overly gloomy.

"We should wait and watch what happens to oil prices, and see whether any relief comes through alongside stimulus measures in China."