Singapore PMI contracts for third month in a row

July's Purchasing Managers' Index for the key electronics sector came in at 49.3, up 0.1 point from June but still registering its ninth month of contraction.
July's Purchasing Managers' Index for the key electronics sector came in at 49.3, up 0.1 point from June but still registering its ninth month of contraction.ST FILE PHOTO

US-China trade war weighs on manufacturing sentiment, despite July's slight uptick

Manufacturing sentiment remained gloomy in July, with concerns like the escalating US-China trade war weighing on the sector.

The Purchasing Managers' Index (PMI) - a key barometer of activity among manufacturers - came in at 49.8 last month, the third straight month of contraction, though it was up 0.2 point from June.

A reading above 50 indicates expansion, and one below points to a general decline.

"The global trade uncertainties have (led to) costly disruptions to current supply chains faced by local manufacturers," said Ms Sophia Poh, vice-president for industry engagement and development at the Singapore Institute of Purchasing and Materials Management (SIPMM), which compiles the index.

July's slight uptick was due to a marginal expansion in new orders and factory output, as well as continued growth in new exports, the SIPMM said yesterday.

The PMI for the key electronics sector was slightly better as well - it came in at 49.3, up 0.1 point from June but still registering its ninth month of contraction.

Source: SINGAPORE INSTITUTE OF PURCHASING AND MATERIALS MANAGEMENT STRAITS TIMES GRAPHICS

This was due to a slower contraction of new orders, new exports, inventory and employment level. But analysts believe the outlook for manufacturing for the rest of the year remains bleak.

OCBC Bank head of treasury research and strategy Selena Ling said the trade war is likely to persist for the rest of the year, noting US President Donald Trump's latest threat to hit China with fresh 10 per cent tariffs on another US$300 billion (S$413 billion) worth of Chinese goods.

IMPACT ON CONSUMERS

My worry is that the year-end festive season orders may not see the usual seasonal pickup since the next tariff tranche... will hit US consumers amid the current global growth slowdown.

MS SELENA LING, OCBC Bank head of treasury research and strategy, on US President Donald Trump's new tariff threat.

While the first three tranches of tariffs tended to be directed towards industrial goods, meaning that consumers were unlikely to bear the brunt, if Mr Trump follows through on the new threat, the impact would spread to consumer goods, she said.

"My worry is that the year-end festive season orders may not see the usual seasonal pickup since the next tariff tranche... will hit US consumers amid the current global growth slowdown," she said.

Ms Ling added that there are other complications as well, such as fallout from the trade dispute between Japan and South Korea. Japan recently decided to strike South Korea off its list of trusted trade partners, deepening a row between the countries.

Maybank Kim Eng senior economist Chua Hak Bin said the threat of added tariffs will likely nudge Singapore into a technical recession this quarter, dashing any hopes of a meaningful recovery in the second half of the year. "If things continue to escalate, we'll have to downgrade our growth outlook for next year," Dr Chua added.

 
 

Singapore is not the only country to see weak manufacturing sentiment. While some still report PMIs of above 50, including Vietnam which is seen as the biggest beneficiary of trade diversions to the region, the PMIs for others, including South Korea and Malaysia, remain in contraction territory.

But Singapore is among the worst hit, said Dr Chua, because it does not benefit as much from investment or trade diversions, which could help to cushion the fall in overall trade volume. "Maybe we will see some gains because of what's happening in Hong Kong... But I think it's still early days to see how that will play out," said Dr Chua on the investment front.

A version of this article appeared in the print edition of The Straits Times on August 03, 2019, with the headline 'S'pore PMI contracts for third month in a row'. Print Edition | Subscribe