Business activity rises on stronger domestic demand

The Central Business District in Singapore on July 15.
The Central Business District in Singapore on July 15. ST PHOTO: KUA CHEE SIONG

Business activity continued to grow at a steady clip last month, according to an indicator that spans the factory, construction and service sectors.

The brighter data from the Nikkei Singapore purchasing managers' index (PMI) comes as a surprise after the official PMI of manufacturing activity showed last week that the sector entered its 14th straight month of contraction.

The Nikkei PMI rose from 50.7 in July to 52.3 last month, the fourth successive monthly improvement in overall operating conditions.

Readings above 50 signal an improvement in business conditions from the previous month, while readings below 50 show a deterioration.

Last month's stronger figure came as output and new orders rose further and at faster rates than in July, driven by improved domestic demand even as new export business fell for the sixth month in a row.

SLOWER GOING FORWARD

I expect it's going to be slower from here. You could say July was an anomaly due to negative headlines on a knee-jerk reaction to the Brexit vote, so we're just coming back to June levels now.

OCBC ECONOMIST SELENA LING, taking a more cautious view.

In fact, stronger overall demand and a solid accumulation of outstanding work led firms to increase their staffing levels for the first time since February, said IHS Markit, which compiles the data from monthly questionnaires filled by executives at about 400 private sector firms.

The pace of new order growth rose to a 17-month high, the fastest pace since March last year, as real estate players recorded more transactions while construction firms reported more new projects.

IHS Markit economist Annabel Fiddes said: "This translated into some much welcome news for the labour market, with firms increasing their headcounts for the first time in six months."

She also noted that the solid increase in backlogs of work and the revival in purchasing activity last month suggest that Singapore's private sector firms will raise output further in the coming months.

But OCBC economist Selena Ling was more cautious, saying: "I expect it's going to be slower from here. You could say July was an anomaly due to negative headlines on a knee-jerk reaction to the Brexit vote, so we're just coming back to June levels now."

The Nikkei PMI's June reading was 52.3, the same as last month. Ms Ling said: "Domestic demand has always been one of the key pillars of support for Singapore's economy, but you still see some signs of softening in the labour market and business confidence. It is also not clear yet what the economic impact of the Zika virus (outbreak) will be."

IHS Markit's forecast is for the Singapore economy to expand by 1.7 per cent this year. The Ministry of Trade and Industry's official estimate is for growth to come in between 1 per cent and 2 per cent this year.

A version of this article appeared in the print edition of The Straits Times on September 06, 2016, with the headline 'Business activity rises on stronger domestic demand'. Print Edition | Subscribe