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UPDATE 1-Singapore factory output jumps the most in 2-1/2 yrs on electronics boost
December 23, 2016 / 7:00 AM / a year ago

UPDATE 1-Singapore factory output jumps the most in 2-1/2 yrs on electronics boost

(Adds details, analyst comments & context)

* Nov factory output +11.9 pct y/y vs +1.6 pct f‘cast

* Industrial output +6.1 pct m/m vs -2.0 pct f‘cast

* Electronics output +24.2 pct y/y

* Pharmaceuticals +36.1 pct y/y; marine & offshore -23.6 pct

By Masayuki Kitano and Fathin Ungku

SINGAPORE, Dec 23 (Reuters) - Singapore’s industrial production in November rose at the fastest annual pace in more than 2-1/2 years as electronics output jumped, a welcome boost to an economy flirting with recession.

Singapore’s economy has been on the ropes in the last two years as exports fell away amid slow world growth, putting manufacturers under intense pressure as sales and profits took a hit.

So the data from the Singapore Economic Development Board on Friday, showing manufacturing output rose 11.9 percent from a year earlier in November, would be a relief to the beleaguered industry.

The growth was the fastest year-on-year increase since March 2014 and well above the median forecast of 1.6 percent growth in a Reuters survey.

Given the strong output data, the risk of the economy slipping into recession can probably be ruled out, said Francis Tan, an economist for United Overseas Bank.

The firmness in industrial production could persist into the first half of 2017, supported by electronics output, Tan said.

“It’s not just a low-base issue... I think there’s a cyclical increase in demand for semiconductors right now.”

On a month-on-month and seasonally adjusted basis, factory output rose 6.1 percent in November, the strongest since January this year. The median forecast was a contraction of 2.0 percent.

Singapore’s government slashed its economic growth and exports forecasts for 2016 after the economy contracted in the third quarter, reinforcing the risk of a recession amid fresh uncertainty around global trade under incoming U.S. President Donald Trump.

The government typically releases its advance estimate for fourth-quarter gross domestic product in early January.

Total manufacturing output rose even as marine and offshore engineering production slid 23.6 percent from a year earlier.

However, electronics output climbing 24.2 percent in November, and pharmaceuticals production jumping 36.1 percent helped more than offset weakness in other areas.

“It still should be the case of uneven performance of the economy, some segments are doing better than others,” said Song Seng Wun, an economist for CIMB Private Banking.

Separate data showed Singapore’s all-items consumer price index was flat in November from a year earlier, coming off a deflationary trend for the first time in two years.

The central bank’s core inflation gauge rose 1.3 percent from a year earlier, the fastest pace since February 2015.

The strong production numbers together with core inflation edging higher meant there is no need to be “too dovish” on monetary policy, UOB’s Tan said, adding that the next direction for monetary policy could be a tightening rather than easing.

“The first half is quite critical. If the core inflation surprises on the upside, then probably in October there may be a need to shift back to some appreciation (of the Singapore dollar’s policy band),” Tan said.

Some analysts have said a deteriorating growth outlook could force the central bank to ease at its next review in April 2017 after it kept its exchange-rate based policy unchanged in October. (Reporting by Masayuki Kitano and Fathin Ungku; Editing by Shri Navaratnam)

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