Even pharmaceuticals can't save manufacturing: DMG

Biomedical production single-handedly lifted industrial output in 2011 but this year it won't be enough.

Manufacturing output will only post a minimal 3.3% growth in 2012, predicts OSK-DMG, down from the 7.6% in 2011 and 29.7% in 2010.

The pessimistic forecast came as pharmaceuticals production is expected to take a small hit, at least relative to sub-sectors like electronics that will slump hard this year amid a bleak global market.

Here's more from OSK-DMG:

Against market and our expectations for a 6.4% and 6.9% rebound, IPI instead expanded by 12.6% year-on-year (yoy) in Dec following the 8.0% decline in Nov. Once again, the surge in pharmaceutical output helped to lift industrial output higher in the month. However, if biomedical production was excluded, output dropped 9.0% yoy in Dec - the six consecutive month of contraction, which highlights the important role that pharmaceutical is playing in the Singapore economy now. For the full-year, IPI rose a healthy 7.6%, though more moderate than 2010’s 29.7% rise.

Pharmaceutical output surged 121.6% yoy in Dec (Nov: 4.9%), helping to boost overall biomedical production higher by 111.6% yoy (Nov: 4.9%). Also lifting IPI in Dec was another strong performance by transport engineering (Dec: 15.1% vs. Nov: 17.5%),on the back of completed ships and oil rigs. This helped to offset the weakness in electronics (Dec: -22.8% yoy vs. Nov: -30.6%), which has been a drag on industrial production for the most part of the year, chemicals (Dec: -4.6% yoy) and general manufacturing (Dec: -1.1% yoy).

We do not expect this strong performance to carry into the first quarter of this year as we do not expect any significant improvement in the electronics sector as global demand remains weak and with the disruption of the supply-chain caused by the floods in Thailand. The leading indicators for electronics points to continue weakness in electronics - SEMI book-to-bill ratio, the US new orders for electronics and US ISM new orders have either improved or remained steady, but Singapore’s electronic PMI (Dec: 49.7 vs. Nov: 50.9) remains on the downtrend, indicating that any recovery in the electronics sector is likely to be patchy and gradual. We continue to expect support for manufacturing to come from pharmaceuticals despite the woes in Europe, though the pace of growth may not match that of last year. Hence, we expect manufacturing output to expand more moderately by 3.3% in 2012.

With the stronger-than-expected showing in Dec manufacturing, we expect 4Q GDP to be revised upwards and could push full-year GDP closer to our projection 5.1% for 2011. We however are leaving our 2012 growth projection unchanged at 4.5%.