Factory growth cools amid trade tensions

October's PMI dips to 51.9; electronics sector records lowest reading since November 2016

Singapore's manufacturing outlook continued to darken last month as United States-China trade tensions began to affect factories across Asia.

The Purchasing Managers' Index (PMI), a key barometer of sentiment among manufacturers, dipped by 0.5 point to 51.9 last month, continuing its decline from the previous month. The PMI came in below the 52.2 forecast from economists polled by Bloomberg.

The electronics sub-index saw a steeper drop of 0.9 point to 50.5, its lowest reading since November 2016.

The overall manufacturing sector, as well as the electronics sector, saw slower growth in new orders, new exports, factory output, inventory and employment level, said the Singapore Institute of Purchasing and Materials Management, which publishes the index based on a survey of over 150 industrial companies.

On the bright side, the overall PMI logged its 26th consecutive month of expansion. A reading above 50 indicates expansion, while one below that signals contraction.

But the factory output index of 52.6 was the lowest reading since July last year, while the imports index of 51.1 was the lowest since February last year.

The indexes of both the finished goods and input prices expanded at lower rates, and the order backlog index reverted to a contraction.

The slower growth for Singapore factories follows an overall weakness across Asian manufacturing PMIs last month. Taiwan, Malaysia and Thailand saw their indexes slipping into contraction territory at 48.7, 49.2 and 48.9 respectively.

China's official index fell to 50.2 last month, down from 50.8 in September, its weakest since 2016. Its Caixin manufacturing PMI - reflecting sentiments of smaller private firms - grew marginally to 50.1 last month from 50 in September.

One exception is Vietnam's PMI, which rose from 51.5 in September to 53.9 last month. A recent American Chamber of Commerce survey of 430 US firms in China showed that Vietnam was the top location for companies hoping to move production out of China, amid the trade war.

OCBC Bank's head of treasury research and strategy Selena Ling said these regional trends show who the potential winners and losers of the trade conflict might be.

"Singapore's 2018 fourth-quarter manufacturing growth is likely to be poised on a relatively lacklustre footing, and barring a de-escalation of the US-China trade war, may soften further into the first quarter next year," she added.

Singapore is still bracing itself for a prolonged trade conflict, with Trade and Industry Minister Chan Chun Sing recently saying the conflict may last for a long while.

Last week, the Monetary Authority of Singapore said in its half-annual macroeconomic review that the negative spillovers of global trade tensions could impact the country in the latter part of this year and beyond.

A version of this article appeared in the print edition of The Straits Times on November 03, 2018, with the headline 'Factory growth cools amid trade tensions'. Print Edition | Subscribe