Electronics sector shrinks after two years of expansion

The sector's purchasing managers' index fell to 49.6, down 0.9 points from July. ST PHOTO: GIN TAY

SINGAPORE - The electronics sector pulled back in August after two consecutive years of expansion and almost sent overall factory activity into contraction.

The sector's purchasing managers' index (PMI) fell to 49.6, down 0.9 points from July, noted the Singapore Institute of Purchasing and Materials Management (SIPMM) on Friday.

A reading above 50 indicates growth, while below 50 signals contraction.

The electronic PMI was weighed down by fewer new orders and lower output, among other factors.

Its poorer performance resulted in slower growth in overall factory activity - down 0.1 point from July to 50.0 - although the manufacturing sector still clocked its 26th consecutive month of expansion.

Ms Sophia Poh, vice-president of industry engagement and development at SIPMM, said: "Nonetheless, manufacturers are sanguine on the near-term outlook of an expected recovery in the China market that could bolster the electronics sector.

"This is in spite of facing various global headwinds of high inflation and energy prices and geopolitical uncertainties."

UOB senior economist Alvin Liew said Singapore's electronic sector PMI was displaying the same pattern of slowdown seen in South Korea and Taiwan, both electronics production powerhouses.

"This adds on to the concerns that global demand is heading towards a downturn on the back of more aggressive monetary policy tightening," Mr Liew added.

He also noted that the outlook for transport engineering, general manufacturing, and precision engineering remains cautiously positive, and these sectors are expected to drive overall manufacturing growth. It is also likely why headline PMI still remains in expansion mode.

"But we are also cognisant about a potentially much slower electronics performance and weaker demand from North Asian economies that could increasingly weigh on non-oil domestic exports momentum and manufacturing demand," Mr Liew added.

Although manufacturing PMI recorded its 26th consecutive month of expansion, the signs are not encouraging and a challenging road lies ahead, said Ms Selena Ling, chief economist at OCBC Bank.

The slower growth also reflects how much the global economy has deteriorated amid multiple headwinds, she added, noting that a manufacturing downturn could hit gross domestic product expectations for the rest of the year.

"If domestic manufacturing momentum continues to disappoint for August and September, there may be a growing risk of a technical recession (in the third quarter)," Ms Ling said.

She added that while the recent relaxation of Covid-19 restrictions has boosted tourist arrivals and allowed for a greater influx of foreign workers, which should benefit the service sector, much still depends on factors like China's growth recovery, the extent of monetary policy tightening in the United States and elsewhere and geopolitical tensions.

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