SINGAPORE - Factory activity in Singapore bucked the general softening trend across much of Asia, and the turnaround also appears to be gaining traction, with businesses becoming more optimistic about the near-term outlook.
The purchasing managers’ index (PMI), a barometer of the manufacturing sector, rose to 50.5 points in December, up from 50.3 points in the previous month, according to the latest data released by the Singapore Institute of Purchasing and Materials Management (SIPMM) on Jan 3.
The PMI for electronics, a key sector of manufacturing, rose to 50.2 from 50.1 points in November. Readings above 50 points denote growth, whereas those below 50 indicate contraction.
December’s expansion was helped by an acceleration in key indexes, including new orders, new exports, factory output, and input purchases. Also seen accelerating were finished goods and the order backlog.
Meanwhile, the imports index stayed unchanged at 50.1 for a second month, after having contracted for the 15 previous months.
The employment index expanded but at a slower rate in December, along with input prices and future business.
In contrast, supplier deliveries continued to contract for a seventh month.
DBS Bank economist Chua Han Teng said the continued expansion in the PMI for both headline manufacturing and the electronics sector gels with the advance gross domestic product estimates released on Jan 2, and together they reflect signs that the Republic’s nascent factory recovery is under way.
OCBC Bank chief economist Selena Ling said the latest data not only showed that manufacturing PMI hit its highest mark since January 2022, but also that Singapore bucked the generally softer manufacturing PMI trend across the rest of Asia.
Only a handful of other key Asian economies have posted upbeat PMIs for December, including China, Indonesia and Vietnam, she noted.
Among the positive signals, Ms Ling highlighted new exports, which are finally reverting to an expansion after shrinking for 16 straight months, as well as the expansion in the future business index, which she said signals continued optimism about the near-term outlook in the first quarter of the new year.
She also zeroed in on the bifurcation between the overall manufacturing PMI and that for the electronics sector.
“These divergences suggest that the manufacturing recovery theme is more mature and is currently led by the non-electronics industries,” said Ms Ling, although she does see green shoots emerging from the electronics sector.
She expects the manufacturing sector to rebound to around 2 per cent growth year on year in 2024, up from 2023’s negative 3.6 per cent.
“This is predicated on world electronics demand stabilising, the global economy making a soft landing, and no escalation in geopolitical tensions,” she said.
“Meanwhile, growth in the global semiconductor industry is likely to be driven by demand for artificial intelligence, particularly due to a greater focus on large language models.”
UOB associate economist Jester Koh said that when compared with preceding months, the improvement in electronics-sector PMI is more broad based, with several sub-indexes turning expansionary.
He added that this is supportive of an electronics cycle upturn through 2024.
Echoing the sentiment, SIPMM executive director Stephen Poh said: “Local manufacturers remain cautiously optimistic of a firm recovery, especially the electronics sector, where global electronics demand appears to be on an uptrend.”
While the economists unanimously expect prospects to brighten in 2024, Mr Chua was more guarded in his optimism, saying that the recovery is likely fragile, given lingering global uncertainties.
“Interest rates remain high in advanced economies, economic conditions are bumpy in China, and lingering geopolitical tensions could still disrupt supply chains,” he noted.
“Although electronics is turning around, we’ll have to wait and see if there’s a sustained expansion; only then can we be sure that the recovery is firm.”
