Singapore Feb Manufacturing Drops; Outlook Cloudy


(Adds comments from economists.)


By John Jannarone

Of DOW JONES NEWSWIRES



SINGAPORE (Dow Jones)--Singapore's manufacturing contracted in February as the mainstay electronics sector continued to drag and pharmaceuticals output moderated.

Manufacturing output fell 2.3% from a month earlier in seasonally adjusted terms after rising 10.8% in January, the Economic Development Board said Wednesday.

A Dow Jones Newswires poll of economists had predicted the output would rise 0.9%.

The data show that Asian exporters are suffering from weaker global demand that could fall further as the year progresses if the U.S. economy slows more than expected. Many economists said the island's central bank will prefer to leave policy unchanged at its meeting in April, holding out for signs of recovery even as consumer prices surge.

"The central bank will wait until the recession hits home in the U.S. and evaluate the impact," said Song Seng Wun, an economist at CIMB-GK in Singapore.

Singapore's electronics sector expanded from a year earlier in February, but Song said seasonally-adjusted growth was flat from the previous month.

Some economists are skeptical of the central bank's willingness to let inflation hover near a 25-year high as the next policy meeting approaches.

"Inflation at these levels and low interest rates are an accident waiting to happen," said Joseph Tan, senior strategist at Fortis Bank in Singapore.

The consumer price index rose 6.5% from a year earlier in February after advancing 6.6% in January, the fastest pace since March 1982.

The burden of rising prices has hit rich and poor alike, with the most recent data showing inflation for the lowest 20% of household income groups nearly keeping pace with the overall rise.

However, Tan acknowledged that like other central banks in the region, the MAS will have to balance its concerns about inflation with rising external risks to growth.

In October the authority set the currency on a "slightly" faster appreciation path but has since warned of the dangers of an excessive appreciation.

"The MAS is clearly focused on preserving economic growth," Tan said.

The island's central bank uses the exchange rate as its chief policy tool because external demand dwarfs the domestic economy.

The government has suggested that Singaporeans buy generic brands to keep expenses contained, and it offered transfer payments to low income groups in February's budget.


Clouded By Volatility


Singapore's manufacturing output in the first two months of the year did expand modestly over the same period last year, but most of the growth was due to a swing in pharmaceuticals output that may not extend through this year.

"We're definitely not out of the woods yet," Tan said.

Biomedical output rose 9.3% from a year earlier after expanding 60.3% in January.

Singapore's pharmaceuticals sector is dominated by a small number of firms, and output can vary significantly when plants change product lineups or close for maintenance.

Weak manufacturing output led Singapore's economy to contract in the fourth quarter, but Song said gross domestic product will likely rise at a rate within the central bank's 4%-6% forecast in 2008.

"Overall growth should be quite decent, and remember that services and construction are still moving along well," he said.

Two casino-resorts are due to open in 2009 and 2010, and the projects have generated billions of dollars in construction contracts.

Overall manufacturing increased 10% from a year earlier in February following a 12.8% increase in January. The poll had predicted a 7.2% on year rise.



-By John Jannarone, Dow Jones Newswires; 65 6415 4153; [email protected]



(END) Dow Jones Newswires

March 26, 2008 03:15 ET (07:15 GMT)

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