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UPDATE 1-Weak Singapore Dec factory output may lead to downgrade in Q4 GDP
January 26, 2016 / 7:12 AM / 2 years ago

UPDATE 1-Weak Singapore Dec factory output may lead to downgrade in Q4 GDP

* Dec factory output -7.9 pct y/y; +2.0 pct m/m

* Median forecasts -7.0 pct y/y; +1.2 pct m/m

* Dec marine & offshore engineering output -40.3 pct y/y

* Q4 GDP y/y growth may be revised lower -analysts

By Masayuki Kitano

SINGAPORE, Jan 26 (Reuters) - Singapore’s industrial production in December suffered its biggest slump in eight months on a year-on-year basis, raising the prospect of the government revising down fourth-quarter economic growth from its initial estimate.

Analysts say the chance of more monetary easing in the trade-reliant city state, which is under pressure from slackening global growth and plummeting oil prices, could grow in coming months.

The manufacturing output data on Tuesday held few positives, with production falling a sharp 7.9 percent in December from a year earlier, data from the Economic Development Board (EDB) showed.

That was the biggest year-on-year fall since a 9.0 percent contraction in April, and worse than the median market forecast of a 7.0 percent drop.

On a month-on-month and seasonally adjusted basis, industrial production rose 2.0 percent in December. That came, however, after output for both November and October were revised down from previous estimates.

“Although the weaker December IP reading may weigh on Q4 GDP ..our concern is that the weakness in production activity extends into January,” Wai Ho Leong, economist at Barclays said in a note.

Fourth quarter gross domestic product will probably be revised lower, to growth of around 1.6 percent to 1.7 percent year-on-year, said Michael Wan, an economist for Credit Suisse, compared to the government’s advance estimate of 2.0 percent growth.

Final Q4 GDP is expected to be released in February, and no later than Feb. 25.

Given the modest outlook for economic growth and low inflation, there is focus on whether the Monetary Authority of Singapore (MAS) will ease policy further in coming months.

“I think as we move into the next few months, the market will try to price in for a higher probability of easing,” said Wan, although for now he expects policy to remain steady at the next semi-annual MAS meeting in April.

The chances for more monetary easing could rise the longer oil prices stay near their current low levels, and if uncertainty over the outlook for the Chinese economy and the yuan increases, Wan added.

Against a backdrop of low inflation and tepid global growth, Singapore’s central bank eased monetary policy twice in 2015.

Sluggish global demand has weighed on Singapore’s manufacturing sector, which accounts for about one-fifth of the city-state’s economy.

Lower oil prices have also dented industrial production by dampening demand for offshore drilling rigs.

Marine and offshore engineering output shrank 40.3 percent in December from a year earlier, while electronics output shrank 12.4 percent on-year. (Editing by Shri Navaratnam)

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