Factory activity expands for second straight month; economists say outlook cloudy

Workers at an electronics manufacturing company that makes printed circuit boards.
Workers at an electronics manufacturing company that makes printed circuit boards. ST PHOTO: DESMOND FOO

SINGAPORE - Manufacturers hit by flagging demand and mounting costs might finally be seeing a light at the end of the tunnel, according to the latest factory data.

However, economists cautioned against over-optimism, given that the outlook remains wobbly both in the region and globally.

The Purchasing Managers' Index (PMI) - an early indicator of factory activity - rose for the second straight month in June, after sliding for five months. The latest reading of 50.4 follows a score of 50.2 in May. A reading above 50 indicates growth.

Manufacturing, which makes up a fifth of Singapore's economy, has been hit hard by ongoing restructuring, rising business costs and the Singapore dollar's strength, which has made exports pricier.

The sector shrank 5.7 per cent over April and May. This was a much weaker showing than the first quarter's 2.5 per cent decline.

The expansion in the PMI last month was attributed to increases in domestic orders, production output and inventory.

The data was compiled by the Singapore Institute of Purchasing and Materials Management from a survey of more than 150 firms.

The PMI for the electronics cluster, which makes up a third of the manufacturing sector, rose to 50.3 last month after May's 49.8 reading.

The readings indicated a decline in new export orders, though domestic orders and production output went up. While inventory and stockholdings of finished goods also continued to shrink, imports expanded for the second consecutive month.

Manufacturers elsewhere in the region have also been hit by tepid global demand.

The struggles of Korea's manufacturing sector deepened in June, with the headline PMI falling to 46.1, its lowest level since September 2012.

Taiwan's PMI fell to a 33-month low of 46.3, while China's official manufacturing PMI stood at 50.2, unchanged from the previous month.

Indonesia's PMI improved, but remained in deep contractionary territory at 47.8.

chiaym@sph.com.sg