SINGAPORE, March 28 (UPI) -- The sharp downturn in industrial production in February is pointing to the first contraction in seven months in GDP growth this quarter for Singapore. And while economists believe the government's target of 3-5 percent growth for this year is still achievable, the risk are now definitely on the downside, given rising oil prices and possible faltering demand in Singapore's main export market, the United States
Manufacturing output contracted 10.2 percent on an annual basis, partly a reflection of many manufacturing plants shutting down during the
Lunar New Year holiday, but also reflecting a 52 percent contraction in the biomedical manufacturing sector.
This means that cumulatively, manufacturing output grew by a mere 0.5 percent in the first two months of 2005 compared to the same period in 2004.
"Output of pharmaceuticals decreased by 63.6 percent arising from a different product-mix from last February. In addition, some products were rescheduled for production in the later part of the year... Cumulatively, the cluster's output for the first two months contracted 25 percent," the Economic Development Board explained in a press release.
DBS Bank economist Chua Hak Bin said the industrial production figure provides some evidence of a "double jeopardy" scenario. "With electronics still slowing and pharmaceuticals plunging, the synchronized downturn is sending manufacturing into a tailspin in the first half of 2005," Chua said.
Pharmaceutical output is by nature very cyclical, but some economists believe the outlook for pharmaceutical growth in general is clouded by increasing regulatory pressures, patent expiries and lack of new blockbuster drugs.
Sustaining growth in the biomedical sector has been an important part of diversifying Singapore's electronics-dominated manufacturing sector. Yet there are increasing signs that this strategy is no longer as effective, as the share of pharmaceutical has gradually fallen from its peak of about 16 percent some one year ago to the current 8 percent.
"With factory output essentially stalling at just 1 percent year on year gain in January-February compared to the 16 percent pace in the same period last year, we anticipate the preliminary first quarter GDP to expand at just 2.9 percent year on year, less than half of the 6.5 percent pace seen in the fourth quarter," said Suan Teck Kin, economist at OCBC.
Suan expect GDP to contract by 4 percent in the first quarter as a result, while DBS' Chua is even more pessimistic, forecasting a quarterly contraction of 5.4 percent.
Yet economists remain optimistic that growth will still hit the government target for the year.
"We are maintaining our full year GDP growth forecast at 4.2 percent, predicated on a recovery in the electronics sector in the second half of 2005," Chua said.
"While we continue to maintain our 2005 GDP growth at 4 percent after the strong 8.4 percent expansion last year, the risk is clearly on the downside against a backdrop of rising interest rates and high crude oil prices," Suan added.
Sailesh Jha, economist at CSFB, pointed that the industrial production figure was "artificially depressed" given the Chinese New Year fell in February.
He expected industrial production growth could rebound by the middle of the year. "Leading indictors are pointing towards a strong rebound in global demand for electronics in the second quarter, and rebounding investments in the sector should ensure a bright medium-term outlook. We project that manufacturing production will rebound to 10-12 percent year on year in the second half of the year after slowing to 5-8 percent in the first half," he said in a recent note.
The Ministry of Trade and Industry is scheduled to release the gross domestic product estimate for the first quarter on or before April 12.
