Factory activity lowest in 3 years as PMI falls for eighth month

Factory activity here has sunk to its lowest level in three years, with production, new orders and employment all falling last month.

The Purchasing Managers' Index (PMI) - an early indicator of manufacturing activity - contracted for the eighth straight month to post a reading of 48.5 in February, a level last seen in December 2012.

A reading below 50 indicates that more purchasing managers reported a deterioration in business than those noting an improvement.

Last month's reading is slightly weaker than the 48.9 contraction forecast by private sector economists in a Bloomberg poll.

In January, the PMI was at 49, after falling to 49.5 in December.

The latest data also dented the hopes of those who had been eyeing an electronics rebound. Last week, the cluster posted a 1.7 per cent rise in production in January from a year earlier on higher output of semiconductors and other electronic modules and components.

But it was weaker activity in the electronics cluster - which has been shrinking each month since last July - that weighed down February's PMI, said the Singapore Institute of Purchasing and Materials Management, which compiles the PMI.

"February's data confirms that manufacturing still remains in recession - and it is possibly deepening," said Bank of America Merrill Lynch economist Chua Hak Bin.

Few expect manufacturing to stage a turnaround any time soon.

The Ministry of Trade and Industry has cautioned that manufacturers will have a tough 2016.

MTI permanent secretary Ow Foong Pheng said last week: "Even though global growth is expected to improve, the continued slowdown in China, the services-driven nature of growth in the United States, as well as the trends of in-sourcing in China and the US, may mean that external demand for our exporters may not see a significant boost this year."

To give them some cost relief, factory bosses are also calling for another round of deferment in the scheduled foreign worker levy hikes in the lead-up to this month's Budget announcement.

The levy rates would have gone up last year if not for a deferment until June 30 next year, unveiled in Budget 2015. Dr Chua said: "The Government should scrap (the hike) altogether. As it is, the headwinds from restructuring don't call for further tightening."

A version of this article appeared in the print edition of The Straits Times on March 03, 2016, with the headline 'Factory activity lowest in 3 years as PMI falls for eighth month'. Print Edition | Subscribe