Regional downturn dampens Singapore factory growth

The slowing manufacturing sector hit its lowest point in two years last month amid a general downturn across the region.
The slowing manufacturing sector hit its lowest point in two years last month amid a general downturn across the region. PHOTO: ST FILE

PMI hits lowest reading in two years with dip of 0.4 point in fifth straight month of decline

The slowing manufacturing sector hit its lowest point in two years last month amid a general downturn across the region.

The key Purchasing Managers' Index (PMI) - a much-watched indicator of industrial activity - dipped 0.4 point to 50.7 from December to last month.

This was its lowest reading since December 2016, when it was 50.6, and it was the fifth consecutive month of decline.

Although the 50.7 reading shows that the overall manufacturing sector is still expanding, there are distinct signs of weakness.

This is most notable in the key electronics segment. It contracted for a third straight month, with its PMI sub-index slipping 0.2 point to 49.6, according to the Singapore Institute of Purchasing and Materials Management (SIPMM), which compiles the data.

It attributed January's lower overall reading in part to slower growth in new orders and new exports.

"Exports are already contracting, and the PMI suggests that manufacturing production could contract for the first half of this year," Maybank Kim Eng economist Chua Hak Bin told The Straits Times.

"Some kind of a trade deal between the United States and China is key to the outlook and to recovery. Barring some kind of compromise, I think manufacturing could be in for a prolonged recession, which may threaten to spread to the services side as well."

Around the region, China's factory activity contracted by the most in almost three years last month, and Taiwan posted its weakest readings since September 2015.

South Korea's PMI hit the joint-lowest since November 2016 and Indonesia logged its first contraction in a year, while Japan's factory activity was the slowest in 29 months.

 

The weak PMI readings reinforce expectations that central banks in Asia will put on hold any further interest rate hikes. There is talk of possible rate cuts in countries such as China, Australia and India.

"Slower growth in overall manufacturing PMI and the sustained contraction pace in the electronics PMI are signs of a moderating economic growth in Singapore," said UOB economist Barnabas Gan, noting that overall manufacturing growth here of 7.5 per cent last year was relatively high compared with the average growth of 2.7 per cent from 2013 to 2017.

"Global growth moderation, a global tech cycle slowdown as well as further uncertainties surrounding US-China trade tensions could further dampen Singapore's overall growth momentum, exports and eventually manufacturing activity in 2019," said Mr Gan.

Dr Chua added that the electronics sector is more cyclical than others such as pharmaceuticals, making it a good barometer of where global demand is headed.

"Collapsing global electronics demand seems to be a warning sign," Dr Chua said. "Even if there is a tariff ceasefire, the US-China war on technology will probably continue, although it may take the form of other barriers, including export controls or foreign direct investment restrictions, which could still hurt the demand for tech goods."

The SIPMM said anecdotal evidence suggests electronics manufacturers remain "cautiously optimistic of improved prospects".

The weak reading for the sector was attributed to a first-time contraction in new orders, new exports and employment, as well as a second-time contraction in factory output, it added.

A version of this article appeared in the print edition of The Straits Times on February 05, 2019, with the headline 'Regional downturn dampens Singapore factory growth'. Print Edition | Subscribe