Manufacturing, which accounts for a quarter of Singapore's economy, fell by a seasonally adjusted 4.8 percent from April, when it rose a revised 13 percent, the Economic Development Board said in a report today, June 27. The median forecast of 11 economists surveyed by Bloomberg was for a 2.2 percent decline. From a year earlier, manufacturing rose 1.7 percent in May.

Singapore is counting on shipments from companies such as Chartered Semiconductor Manufacturing Ltd and Pfizer Inc to head off a second straight quarterly contraction, which would tip the economy into its fourth recession since 1998. The economy shrank at a 5.5 percent annual pace in the first quarter, its worst performance since the SARS outbreak disrupted business across Asia in the second quarter of 2003.

``This is a pretty disappointing number and if the industrial side is weak it's not going to give much confidence to the rest of the economy,'' said Nigel Rendell, an economist at CLSA Singapore. The economy may avoid a recession because May's decline in manufacturing isn't big enough to erase the gain in April, Rendell said.

Production of drugs and medical devices in May slumped a seasonally- adjusted 26.5 percent from April, accounting for the bulk of the decline, said Kok Yit Hoe, a research officer at the Economic Development Board. Output of electronics and transport equipment also declined from April, she said by telephone.

`Temporary Blip'

``This could just be a temporary blip and we are looking for a better second half for the electronics sector,'' said Chua Hak Bin, an economist at DBS Group Holdings Ltd. ``Electronics inventories are still declining and all indicators point to a pick up ahead.''

Singapore's exports unexpectedly fell in May as companies shipped fewer computer chips and pharmaceuticals to the US and Europe.

Non-oil domestic exports fell a seasonally adjusted 5.3 percent from April, when they gained 4.6 percent, International Enterprise Singapore, the trade promotion body, said in a June 17 report. From a year earlier, Singapore's non-oil exports fell 5.6 percent, the first decline in 35 months.

Prime Minister Lee Hsien Loong's government cut its 2005 growth forecast to as little as 2.5 percent on May 17 after the economy shrank in the first quarter. The economy grew 8.4 percent last year.

Singapore's consumer price index also unexpectedly failed to rise in May from a year earlier, according to a report last week by the Department of Statistics, suggesting the central bank has room to ease monetary policy by allowing its currency to weaken.

Inflation

The Monetary Authority of Singapore uses the level of the island's currency to control monetary conditions, instead of interest rates. On April 12, the central bank extended its year- old strategy of seeking a ``modest and gradual'' appreciation of the Singapore dollar to keep inflation in check. Policy makers are scheduled to meet again in September.

The central bank seeks to prevent the dollar from rising or falling outside an undisclosed band based on a basket of currencies of its biggest trading partners. The Singapore dollar has risen by about 2 percent against the U.S. dollar in the past 12 months.

`No Sense'

``The current policy of currency appreciation makes no sense when there's very little industrial growth, exports are suffering and inflation is,'' said CLSA's Rendell, who today cut his 2005 growth forecast for Singapore to 2.8 percent from 3.5 percent. The MAS is ``going to have to change in September,'' he said.

Electronics production declined a seasonally-adjusted 3 percent from April. From a year earlier, electronics output gained 2.7 percent in May, following a revised 9.4 percent rise in April, today's report said.

Computer chips fell 3.4 percent, reversing a revised 3.4 percent gain in April. Production of disk drives surged almost 36 percent from a year earlier, after gaining almost 32 percent in April.

``Contractions in the semiconductors and computer peripherals segments moderated the expansions in the other segments,'' the EDB's report said.

Electronics account for 32 percent of Singapore's manufacturing. Pharmaceuticals, where temporary shutdowns for cleaning or expansion for new products can cause big swings in output because of the small number of drug factories in Singapore, make up 19 percent.

Pharmaceuticals shrank almost 19 percent in May from a year earlier, following April's 14.6 percent contraction, today's report said.

Drug production has slumped almost 21 percent in the first five months from a year earlier, the report said.

Excluding pharmaceuticals and medical devices, production gained 5.8 percent in May from a year earlier following a revised 8.3 percent gain in April.

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