Manufacturing output jumped 10.5% in January 2011

However, the growth was not driven by the erractic pharmaceutical sector which actually declined 9.5% in January 2011.

According to HSBC, Manufacturing output jumped 15.4% mom sa. This was well-above consensus of 6.9% yoy and 7% mom sa.

Excluding biomedical output, on the other hand, manufacturing grew by a stronger-than-expected 18.9% y-o-y (vs. 10.8% in December) and jumped by 7% m/m sa (vs. 2.3% in December). Surprisingly, this was largely driven by stellar growth numbers for the electronics cluster (20.2% vs. 9.1% in December), led by semi-conductors and a dizzying jump of 110.4% for infocomms & consumer electronics, feeding a seemingly never satiated appetite for gadgets.

Chemicals and precision engineering also came in strong, with the latter particularly driven by the machinery & systems segment, which was boosted by strong export demand for semiconductor related equipment and new plants.

For once, and what a nice surprise, the IP numbers were not jerked around by the volatile mood swings of the pharmaceutical sector. Encouragingly, the important electronics sector regained its footing, at least this month, and other non-bio clusters also show promise of a continued strong momentum.

Looking ahead to 2011, growth in manufacturing is still expected to decelerate after the strong rebound in 2010 and with the maturation of the global restocking cycle. Also, the growth pace for electronics sector in January is clearly not sustainable. For the pharmaceutical sector, it will also be difficult to repeat the strong growth in 2010 when new production facilities and a high-value-added product mix boosted output.

But, the numbers out today at least entertains the possibility that growth may not slow by as much as originally expected and puts a big fat line under “more tightening” in the MAS’ to-do-list, with a re-centering of the band likely at the April meeting. Even with the slowdown in growth, the economy will continue to operate close to its potential and this will sustain the demand-led price pressures.

While manufacturing output growth will ease this year with the full maturation of the global inventory cycle, it may not be by as much as expected. With inflation trending up and capacity tight, this spells further MAS tightening.