January 24, 2014 / 7:51 AM / in 4 years

UPDATE 1-Singapore's firm output, weak exports may flag build-up in inventories

* Dec industrial output +6.2 pct y/y (Reuters poll -0.4 pct)

* Economists say Q4 GDP could be revised up from advance estimate

* Output outshines exports in 2013, suggesting possible inventory rise (Adds December industrial output figures, comments on GDP)

By Masayuki Kitano

SINGAPORE, Jan 24 (Reuters) - Singapore’s factories may be in for a rougher ride this year if manufacturers ramped up output in anticipation of a pick-up in global demand, and caused stocks to swell.

That worry is underscored by the city-state’s firm industrial output growth, with the final month of 2013 blowing past expectations, which contrasts with weakness in exports over the year.

If electronics and other goods have been built up in warehouses, analysts say it raises the risk of an inventory adjustment that may temporarily weigh on industrial production in the trade-reliant economy.

But a surprise 6.2 percent jump in December output from a year earlier, against expectations for a fall, was seen bolstering fourth-quarter growth.

“I wouldn’t be surprised to see a positive number,” said Michael Wan, an economist for Credit Suisse. Advanced fourth quarter GDP shrank a seasonally adjusted and annualised 2.7 percent from the previous quarter.

Song Seng Wun, an economist for CIMB, said fourth-quarter GDP could be revised to growth of 5.4 percent year-on-year from the advance estimate of 4.4 percent, assuming that there were no changes to sectors other than manufacturing.

Singapore’s manufacturing sector is anchored by electronics and pharmaceuticals but has lagged the rest of the region in recent years as the economy has become increasingly reliant on trade, financial services, tourism and property development.

The divergence between output and exports widened last year as total manufacturing output expanded while non-oil domestic exports fell. The gap has been more obvious in the electronics sector, which accounts for a third of Singapore’s output.

In the electronics sector, total production in January-November 2013 rose 1.8 percent from the same period a year earlier, according to the Singapore Economic Development Board.

But total domestic electronics exports in the first 11 months of 2013 slid 11.9 percent year-on-year, International Enterprise Singapore data shows.


Inventories have increased in each of the first three quarters of 2013 within the city-state’s economy as a whole, according to gross domestic product data.

“Starting from the latter half of 2012 until recently, I think there has been a quite a bit of inventory build-up on a macro basis,” said Hayato Nakamura, Singapore-based senior economist for Bank of Tokyo-Mitsubishi UFJ.

The Singapore Institute of Purchasing & Materials Management’s purchasing managers’ index (PMI) shows that electronics inventories expanded during much of 2013.

To be sure, economists including Nakamura say that a build-up of inventories is just one of the possible factors behind the divergence in output and exports.

The data is also a bit patchy.

The PMI survey shows that stocks of finished goods in the electronics sector have contracted for months, and the GDP data can reflect changes in inventories in the non-manufacturing sector as well as among manufacturers.

Another reason for the gap may be a drop in the prices of exported goods that thus caused a fall in nominal exports, which are measured at current prices.

But not all agree that weak prices explain the disparity between the firmness of output and the weakness of exports.

“If you check semiconductor chip prices, it’s not as if they are collapsing or anything,” said Chua Hak Bin, Singapore-based economist for Bank of America Merrill Lynch. “To me, it’s probably the inventory argument.”

One pocket of strength in output has been semiconductor production, which alone accounts for 20 percent of the city-state’s total manufacturing output.

Asked if an inventory build-up in the chip industry may have been a factor behind the output/export gap, Russell Tham, regional president, South East Asia for top chip gear-maker Applied Materials Inc, said Singapore is not a place where firms tend to keep a lot of their inventory.

“We don’t have a large domestic market, so I don’t think the inventory stacks around here,” Tham said.

Jagadish C.V., chief executive officer for Singapore-based semiconductor manufacturer Systems on Silicon Manufacturing Co Pte Ltd, said there was likely some typical year-end accumulation of inventory among semiconductor firms in Singapore in the fourth quarter of 2013.

“I would say 2014, maybe in general in Singapore for the semiconductor industry, quarter one may be a little bit flat or slower,” said Jagadish, adding that semiconductor production was likely to turn stronger later in 2014.

If an inventory build-up has taken place, that could weigh on output, especially if global growth disappoints. It could be a risk factor for the general view among economists, who expect growth in Singapore’s manufacturing sector to accelerate in 2014. (Additional reporting by Brian Leonal and Rujun Shen; Editing by Jacqueline Wong)

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