Manufacturing shows signs of recovery

The 0.3-point rise in the Purchasing Managers' Index last month was due to an increase in new orders, new exports and employment, as well as faster rates of growth in factory output and inventory. Analysts say the figure suggests the sector has botto
The 0.3-point rise in the Purchasing Managers' Index was due to an increase in new orders, new exports and employment, as well as faster rates of growth in factory output and inventory.ST FILE PHOTO

PMI above 50 for first time since last April, indicating expansion in factory activity

A key gauge of Singapore's manufacturing sector signalled a long-awaited recovery amid the easing of trade tensions and a stabilising global economy.

The Singapore Purchasing Managers' Index (PMI) indicated an expansion in factory activity after seven straight months of contraction. It rose to 50.1 last month - the first time since last April that it had climbed above 50, which signals expansion.

The 0.3-point rise in the PMI was due to an increase in new orders, new exports and employment, as well as faster rates of growth in factory output and inventory, said the Singapore Institute of Purchasing and Materials Management (SIPMM), which compiles the index, in its release yesterday.

"The latest PMI reading bodes well for the manufacturing sector as companies will become less pessimistic about trade uncertainties going forward," said Ms Sophia Poh, SIPMM vice-president for industry engagement and development.

Analysts said the encouraging PMI reading suggests that the manufacturing sector has bottomed out and is on track for recovery this year.

United Overseas Bank economist Barnabas Gan said: "The gains were likely led by the improving market sentiment surrounding Singapore's export and manufacturing environment."

He added that the employment index rose to 50.1 last month after six straight months of contraction, which suggests positive hiring sentiment among manufacturing firms.

While the key electronics sector PMI entered its 14th consecutive month of contraction, it posted a reading of 49.9, a 0.2-point rise from the previous month that brought it to the edge of the 50-point demarcation line. This is also the highest reading the electronics sector has posted in 13 months.

Maybank Kim Eng senior economist Chua Hak Bin said the improvement in the PMI last month reinforces the view that the partial trade deal between the United States and China is helping to boost confidence in the industry, with capital expenditure going up as a consequence.

"Recovery (in the manufacturing sector) could be choppy, but as long as US-China talks do not break down and there is no re-escalation of trade tariffs, the manufacturing recovery should be sustained over the year," he said.

IMPROVED SENTIMENT

The gains were likely led by the improving market sentiment surrounding Singapore's export and manufacturing environment.

UNITED OVERSEAS BANK ECONOMIST BARNABAS GAN, on the latest PMI reading.

As part of a first-phase US-China trade deal which will be signed on Jan 15, the US will halve its 15 per cent tariff on about US$120 billion (S$162 billion) worth of Chinese goods. China, in return, will boost its imports of US goods by US$200 billion over two years.

Dr Chua noted that Singapore's PMI recovering into expansion territory is consistent with last month's factory activity in the region, with China and South Korea also seeing their first PMI readings above 50 since last April.

A version of this article appeared in the print edition of The Straits Times on January 04, 2020, with the headline 'Manufacturing shows signs of recovery'. Print Edition | Subscribe