By Masayuki Kitano

By Masayuki Kitano

SINGAPORE (Reuters) - Singapore's industrial production unexpectedly surged in September, raising the prospect of an upward revision to third-quarter gross domestic product, although the outlook remains clouded by sluggish global demand.

Manufacturing output rose 6.7 percent from a year earlier in September, data from the Singapore Economic Development Board showed on Wednesday. The median forecast in a Reuters survey was a rise of 0.6 percent year-on-year.

The 6.7 pct year-on-year rise in industrial production is the biggest annual expansion since March 2014 (when output rose about 12.2 percent).


"There's no doubt that there was a bit of an underestimation of Q3 GDP," said Vishnu Varathan, senior economist for Mizuho Bank. "The more important question is, to what extent is this durable? Because if it's one and done, then yes arithmetically we do move Q3 (GDP) up but it doesn't do anything for the prospects ahead," he said.

On a month-on-month and seasonally adjusted basis, factory output expanded 3.3 percent in September. The median forecast was a contraction of 2.6 percent month-on-month.

Solid increases in the output of electronics and pharmaceuticals helped lift overall production. Electronics output increasing 15.9 percent from a year earlier. Pharmaceuticals output jumped 26.9 percent after having slid 14.1 percent in both August and July.

Pharmaceuticals output tends to be a volatile data series, and can swing sharply from month to month.

Earlier this month, Singapore's central bank held policy steady despite a surprisingly sharp economic contraction in the third quarter.

"It does seem to justify their not-moving earlier this month. It does suggest that the growth was not falling off the cliff," said Brian Tan, an economist for Nomura.

"At least for the next six months there is some possibility of them keeping it unchanged," Tan said.

Nomura's base case is for the central bank to keep policy unchanged in April with a 30 percent chance of an easing by re-centering the Singapore dollar policy band lower.

Gross domestic product contracted 4.1 percent in the July-September quarter from the previous quarter on an annualized and seasonally adjusted basis, according to the government's advance estimate of third-quarter GDP released on Oct. 14.

The GDP data showed that manufacturing sector shrank 17.4 percent in the third quarter.

Mizuho Bank's Varathan said that third-quarter manufacturing performance might be revised to show a smaller contraction, of about 3.8 percent or so.

Unless there is an upward revision to services, however, third-quarter GDP will still probably still show a quarter-on-quarter contraction, Varathan said.

Updated third-quarter GDP data is expected to be released around late November.

Even with the jump in output in September, Singapore's industrial production has been sluggish this year, with total manufacturing output in January to September increasing just 0.7 percent from the same period a year ago.

Industrial production has been held back by lackluster exports, hit hard by depressed demand for offshore drilling rigs built by Singapore's rig-building industry as global oil prices slid over the past two years.

(Reporting by Masayuki Kitano and Jongwoo Cheon; Editing by Eric Meijer)

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