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Manufacturing growth slows, could impact GDP growth

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The manufacturing sector, a key driver of Singapore's growth throughout this year, hit an unexpected road bump last month as its growth slowed markedly.

Any slowdown in manufacturing, which has been one of the few bright spots in the economy while some sectors struggle, could impact overall GDP growth for the year.

In May, the manufacturing output expanded for the 10th straight month, though its growth was not only slower than in April, but also fell short of forecasts.

The expansion was powered by the electronics segment, but forecasters warned that even that could wane in the second half of the year.

Industrial production rose by 5 per cent in May from a year ago, easing from the 6.7 per cent increase in April, the Economic Development Board said yesterday. Manufacturing output was also markedly below the 7.5 per cent growth estimate of private sector economists polled by Bloomberg.

"What we should be worried about is that growth is not broad-based across all segments of manufacturing. Electronics has been single-handedly pulling up the numbers," noted United Overseas Bank economist Francis Tan.

Electronics output surged by 35.1 per cent last month from a year ago - chalking up a full year of double-digit growth - driven by the 48.3 per cent spike in the production of semiconductors.

The higher demand for semiconductor-related equipment spilled over to the precision engineering sector, which grew 19.1 per cent.

Given the high-base effect among other factors, UOB's Mr Tan estimates that electronics could see just single-digit growth down the road, which will dampen overall manufacturing output and even GDP numbers.