Singapore Aug factory output sees worst drop in 6 years

SINGAPORE, Sept 26 (Reuters) Singapore's August factory output fell a seasonally adjusted 13.7 percent from July, its sharpest decline in nearly six years, as lower drugs production eclipsed a recovery in electronics, data showed on Wednesday.

The figure missed the median of forecasts by five economists for seasonally adjusted 11.0 percent drop.

The drop follows a 26.3 percent rise in July, revised up from 25.5 percent, and a 9.6 percent fall in June.

Electronics production, at 29 percent of the total output the biggest part of Singapore's manufacturing sector, rose 10.0 percent in August from July after adjustments for seasonal patterns. Output in transport engineering, which includes key offshore engineering industries, declined 11.1 percent.

Compared with a year earlier, factory output in August rose 13.8 percent, below a market forecast for a 16.5 percent rise, with pharmaceuticals sector up by 52.6 percent and electronics lagging with a 5.6 percent rise.

''The main sector of weakness looks to be electronics. The picture doesn't look good going forward, said Vishnu Varathan, an economist at Forecast.

''The book-to-bill ratio has been languishing quite badly, and there don't seem to be any clear signs of a pickup in U.S.

consumer sentiment as a driver of tech demand.'' The book-to-bill ratio , which compares volume of orders to products shipped, was 0.83 in August, which means in orders was received for every 0 of product shipped.

''We will probably continue to see support from offshore marine due to higher oil prices and from pharmaceuticals, despite the inherent volatility. It won't be easy going forward. We won't see the double-digit growth we saw last year,'' Varathan said.

The Economic Development Board, which compiles the data, does not provide seasonally adjusted figures for the biomedical industries because of the high volatility of this sector.

Pharmaceuticals output, 22 percent of total manufacturing, is fickle because companies often switch products and shut down factories to prepare for production of another drug.

Manufacturing accounts for about a quarter of Singapore's trade-dependent economy, making it highly vulnerable to consumer demand and the economic health of its main export markets in Europe and the United States.

In July, Singapore's government cut its 2007 forecast for non-oil domestic export growth to 4-6 percent from 7-9 percent as a sluggish recovery in the technology sector dimmed the outlook for the manufacturing.

REUTERS MP DS1417