Manufacturing muscle boosts economy, Latest Singapore News - The New Paper

Manufacturing muscle boosts economy

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Strong demand for electronics and factory output growth brighten prospects

The outlook for Singapore's economy is brightening on the back of export-led growth in the resurgent manufacturing sector.

Companies say sales have been picking up, and some economists are optimistic that the uptick in activity will spill over to the rest of the economy and, eventually, the labour market.

But others caution that risks remain - for instance, rising protectionist sentiment worldwide could threaten the nascent trade recovery.

Manufacturing, which makes up one-fifth of the economy, is benefiting from a more sanguine global outlook and strong demand for electronics, especially semiconductors.

Factory output recorded another month of stronger-than-expected growth in February, expanding 12.6 per cent and beating economists' expectations of a 10 per cent rise. This, in turn, lifted exports and overall economic growth numbers.

CEI Contract Manufacturing managing director Tan Ka Huat said the company is seeing good growth in the semiconductor segment.

This growth comes on the back of strong demand from China but he added: "The question is whether or not it is sustainable and how long will it last."

Maybank Kim Eng economist Chua Hak Bin said the export-led recovery in manufacturing has broadened out into the services sector, which makes up two-thirds of the economy.

Growth in non-oil re-exports - a proxy for wholesale trade services - turned positive in recent months, while bank loan growth numbers have also picked up, a sign that finance and insurance services are doing better, Dr Chua noted.

A rise in property market transactions helped boost performance of the business services segment in the first quarter, he added.

Demand for new private homes recorded a third straight strong month in February as developers sold 977 units - a hefty jump from the 382 units sold in January.

"What started out as a narrow manufacturing and trade-led recovery has broadened and this should show up in the first-quarter numbers," said Dr Chua, who has tipped economic growth of 2.8 per cent for the first three months of this year.

It remains to be seen whether this momentum will persist, said CIMB Private Bank economist Song Seng Wun.

US President Donald Trump's maiden summit with China's President Xi Jinping last week should shed some light on the direction of US-China relations and, by extension, the outlook for global trade and investment, Mr Song noted.

Other events to watch include the upcoming French presidential election, as the outcome could fuel the rising tide of protectionist sentiment globally.

But stronger economic growth is not yet translating into more jobs.

Last year, the labour market went through its roughest patch in years and the 3 per cent resident unemployment rate was the highest since 2010.

"The labour market tends to be a lagging indicator - companies take time to decide to hire or lay off people," said Dr Chua, who expects job numbers to pick up this year.