Biomedical Boost

Kim Eng on 27 Jul 2012

Industrial Production (IP) growth surprised on the upside in June 2012 as it gained +7.6% YoY (revised May 2012: +6.8% YoY; Consensus: +2.8% YoY), led by biomedical production. MoM, the seasonally adjusted IP grew by +3.9% (May 2012: +2.8%), while for the first half of this year, production was up +1.8% YoY (1H 2011: +6.5% YoY). Growth in 2Q 2012 was 4.5% YoY, better than the 3% YoY estimate made for the quarter’s preliminary real GDP growth of +1.9% YoY and -1.1% annualized QoQ, offering some scope for a small upward revision to the final figure.

Biomedical Manufacturing and Transport Engineering were at it again. Pharmaceuticals (June 2012: +68.8% YoY; May 2012: +39.2% YoY) posted a second consecutive month of strong double-digit growth which boosted output of Biomedical cluster by +54.4% YoY (May 2012: +33.3% YoY). Transport Engineering (June 2012: +7.6% YoY; May 2012: +36.2% YoY) cluster was the second largest contributor to IP growth in Jun 2012, although the growth pace decelerated considerably amid slower growth in the Marine & Offshore Engineering (June 2012: +8.1% YoY; May 2012: +45.3% YoY) and Aerospace (June 2012: +4.4% YoY; May 2012: +23.3% YoY) subdivisions.

IP ex-Biomedical fell by -1.5% YoY (May 2012: +2.2% YoY) as the Electronics cluster remained a drag following the -4.4% YoY decline in production (May 2012: -9.3% YoY). Lower output were reported in Computer Peripherals (June 2012: -18.1% YoY; May 2012: -7.1% YoY) as a result of lower production of printed circuit boards and other computer product, while Data Storage (June 2012: -2.5% YoY; May 2012: +28.6% YoY) fell reflecting lingering hard disk drive supply shortages caused by the Thai flood. Adding to the Electronics negative contribution to output in June 2012 were further contractions in Chemicals (Jun 2012: -5.7% YoY; May 2012: -3.9% YoY) and Precision Engineering (Jun 2012: -3.4% YoY; May 2012: -1.4% YoY).

Recently-released European data remain cause for concern, but some encouraging signs from China. MAS recently noted that Singapore’s 2012 GDP growth could come in below 1% if US and China economies were to slump and conditions in Eurozone worsen, although the Official forecast remains at 1%-3%. Our expectations are for the economy to expand by +3.0% (2011: +4.9%). Flash Eurozone manufacturing PMI for July 2012 came in at 44.1, the lowest since May 2009 as both Germany and France registered lower readings of 43.3 and 43.6 respectively as business confidence in these two countries slumped to a two-year low this month, while UK registered a second consecutive contraction in quarterly real GDP growth (2Q 2012: -0.7% QoQ; 1Q 2012: -0.3% QoQ). However, China’s HSBC/Markit preliminary manufacturing PMI for July 2012 improved to 49.5, the highest reading since Feb 2012, suggesting the economy is responding to the two benchmark interest rate cuts as well as the administrative/fiscal stimulus over the past two months.