Factory activity in S'pore shrinks for 14th month

Factories in the Jurong industrial district. Last month's PMI reading of 49.8 was up slightly from July's, but economists warned against over-optimism.
Factories in the Jurong industrial district. Last month's PMI reading of 49.8 was up slightly from July's, but economists warned against over-optimism. PHOTO: REUTERS

Economists warn of prolonged slump in sector as region's output remains sluggish

The beleaguered manufacturing sector contracted for the 14th straight month in August as the global outlook remained weak.

The pace of contraction was slower than in July, but economists warned against over-optimism, given that factories across the region remain mired in a slump.

The Purchasing Managers' Index (PMI) - an early indicator of manufacturing activity - came in at 49.8 last month, up slightly from the 49.3 reading in July. A reading below 50 indicates contraction.

Singapore's PMI has been in contractionary territory since last June.

The improvement last month over July was due to more new orders and new exports, as well as increases in factory output.

However, manufacturing employment, which has been contracting since November 2014, remained lacklustre.

The data is compiled by the Singapore Institute of Purchasing and Materials Management from a monthly poll of purchasing executives at about 150 industrial firms.

The survey also showed that the PMI for the electronics sector logged a marginal expansion at 50.2 - the first sign of an uptick after 13 months of contractionary readings.

This was attributed to a rise in new domestic and export orders as well as increased factory output.

"Typically the electronics industry tends to lead the broader manufacturing sector, so the electronics PMI's return to expansion territory, if sustained over the coming months, would definitely be a welcome signal," said OCBC economist Selena Ling.

Manufacturers turned in patchy performances elsewhere in the region. China's official PMI showed that factory activity expanded at its fastest pace in nearly two years last month. The reading came in at 50.4, the highest since October 2014. But this was more than offset by the drop in a separate private survey of China's manufacturing activity - the Caixin Manufacturing PMI. This came in at 50 last month, slightly missing forecasts for 50.1 and below July's 50.6 reading.

India's manufacturing sector is accelerating, and Indonesia, Taiwan and Vietnam also picked up a little speed, the latest numbers showed. In contrast, Malaysia and South Korea pulled back.

"On the surface, it's not too bad: Outside of China things actually seem to be improving. And it's tempting to expect even further gains ahead," said Mr Frederic Neumann, co-head of Asian economics research at HSBC.

"But we'd caution against getting too carried away. Most of Asia depends on exports, and without demand picking up in the West and on the mainland, it's hard to see a sustained rebound in trade.

"The bottom line is that Asia's manufacturing sector remains soggy, with no prospect of a bounce."

A version of this article appeared in the print edition of The Straits Times on September 03, 2016, with the headline 'Factory activity in S'pore shrinks for 14th month'. Print Edition | Subscribe