Factory activity shrinks further amid lacklustre global outlook

Employees working at a production line of electronic panels at a factory of FiberHome Technologies Group in China.
Employees working at a production line of electronic panels at a factory of FiberHome Technologies Group in China.PHOTO: REUTERS

The manufacturing sector sank further into the doldrums last month amid a still-tepid global outlook and mounting concerns about a looming technical recession here.

The Purchasing Managers' Index (PMI) - an early indicator of factory activity - hit 48.6 last month, following a reading of 49.3 in August. A reading below 50 implies contraction.

The outlook for the rest of Asia is also looking bleak - factories in the region cut jobs and production last month as domestic and export demand continued to fall, according to the latest round of disappointing regional manufacturing data.

China's manufacturing sector remained lacklustre last month, according to two separate gauges released yesterday.

The world's No. 2 economy is Singapore's largest trading partner.

The Chinese government's official gauge of factory activity improved, with the manufacturing PMI rising to 49.8, up from August's three-year low of 49.7, but still marking two straight months of decline.

Meanwhile, a private survey by Caixin revealed that the PMI fell to a six-year low of 47.2, down from August's reading of 47.3.

A national holiday across China meant markets in Shanghai, Shenzhen and Hong Kong were unable to respond to the data.

Yesterday's PMI data for Singapore - which was released after the markets closed - showed declines in new domestic and export orders, production and employment.

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

The PMI numbers reinforce the recent spate of poor data from the manufacturing sector and further contribute towards expectations that the central bank will ease monetary policy when it meets later this month, said UOB economist Francis Tan.

"There's no pickup in sight for manufacturing because of poor demand elsewhere in the world," he noted.

Other central banks in the region have already acted to stimulate growth in their economies by cutting interest rates, further weighing on already-weak currencies.

This will affect the international competitiveness of Singapore's exports, and might put pressure on the Monetary Authority of Singapore to ease the appreciation of the Singdollar at its next policy meeting, Mr Tan added.

Ms Krystal Tan, Asia economist at Capital Economics, said manufacturing in the region remains lacklustre but there are some signs of improvement.

For instance, the latest PMI data from Taiwan and South Korea suggests the pace of decline in their manufacturing sectors has eased, she noted.

Still, "Asia's export recovery will be gradual and a return to the double-digit rates of export growth that were the norm before the global financial crisis is very unlikely".

A version of this article appeared in the print edition of The Straits Times on October 02, 2015, with the headline 'Factory activity shrinks further amid lacklustre global outlook'. Print Edition | Subscribe