Surprisingly strong industrial production numbers a relief, but unlikely to be sustainable: analysts

Demand remains painfully weak.

Singapore surprised markets with a robust 2.9% year-on-year expansion in factory output in April, but experts warn that it's still too early to pop the champagne.

"Sustainability remains in question," Citi economist Wei Zheng Kit said in a report, highlighting that the rebound in production has run significantly ahead of export growth. "The associated buildup of inventories risks a sharp pullback in production in subsequent quarters if demand does not recover," he said.

And while the manufacturing and trade-related services sectors saw a better start in the second quarter, other services such as retail face a dimmer outlook on back of weak private consumption.

"Thus, while Apr data suggests a strong start to 2Q, weakness in leading indicators provides ample reasons to be cautious," Wei said.

UOB economist Francis Tan noted that despite the strong industrial production growth, the manufacturing sector is not yet fully out of the woods as several other clusters remain in contraction. However, he noted that the robust growth may point to green shoots for Singapore’s manufacturers in the coming months.

“The better-than-expected April IP numbers may reverse the contractionary trend seen over the past 18 months. the low base effects from a weak IP last year, together with expectations of the continued economic recovery in the US may provide a boost to the on-year manufacturing growth numbers,” he said.