SINGAPORE - Amid factory activity slowing across much of Asia last month, Singapore saw a key manufacturing indicator falling to its weakest in two years.
The Republic's Purchasing Managers' Index (PMI) for January dipped 0.4 point to 50.7 from the previous month, its lowest reading since December 2016 and its fifth consecutive month of decline.
Although the overall manufacturing economy is still expanding, indicated by a reading of 50 and above, Singapore's key electronics sector contracted for a third straight month with its PMI sub-index slipping 0.2 point to 49.6.
The Singapore Institute of Purchasing and Materials Management (SIPMM), which compiles the data, attributed January's lower overall PMI to slower growth in new orders, new exports, factory output, inventory and employment level, it said on Monday (Feb 4).
While some indexes such as finished goods, imports, imput prices and supplier deliveries saw expansion at a lower rate, others such as the order backlog index continued to contract for a fourth month.
"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," he added. "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."
Negotiations between the economic giants are ongoing with a hard deadline of March 1, which could see another sharp escalation in the trade war if the US more than doubles tariffs on US$200 billion in Chinese goods.
Around the region, China's factory activity shrank by the most in close to three years last month and Taiwan posted its weakest readings since September 2015. South Korea saw its PMI hit the joint-lowest since November 2016 and Indonesia logged its first contraction in a year. Japan's factory activity was the slowest in 29 months.
"Slower growth in overall manufacturing PMI and the sustained contraction pace in the electronics PMI are signs of a moderating economic growth in Singapore," UOB economist Barnabas Gan added, noting that Singapore's overall manufacturing growth of 7.5 per cent in 2018 was relatively high compared to 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 into 2019," he said.
Dr Chua noted that the electronics sector is more cyclical than others such as pharmaceuticals, making it a good barometer of the growth cycle and 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."
Going forward, SIPMM said anecdotal evidence suggests that electronics manufacturers remain "cautiously optimistic of improved prospects".
The weak reading for the electronic 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, said SIPMM.
Lower rates of expansion were seen in the indexes of inventory, finished goods, input prices and supplier deliveries as well, and electronics imports also posted a second contraction. The order backlog index for electronics continued to contract for the ninth consecutive month.