Singapore factory activity remains in contraction

PMI inches up but sector in negative territory for fourth straight month amid trade tensions

There was a slight uptick in manufacturing sentiment last month but the sector remained in negative territory for the fourth consecutive month on the back of escalating trade tensions.

The purchasing managers' index (PMI) - an early gauge of factory activity - edged up 0.1 point from July to a reading of 49.9. A reading above 50 indicates expansion; one below points to contraction.

August's modest rise was due to a marginal expansion of new orders and a slower contraction in inventory, noted the Singapore Institute of Purchasing and Materials Management (SIPMM), which compiles the index.

"Despite the ongoing global trade uncertainties, anecdotal evidences of the survey suggest that foreign manufacturers are exploring opportunities to collaborate with local manufacturers to overcome the high tariffs imposed on their countries," said Ms Sophia Poh, SIPMM vice-president for industry engagement and development.

Maybank Kim Eng senior economist Chua Hak Bin said the slight rise in the index last month could be a sign the factory slowdown has bottomed out, although it could also just be a temporary respite.

The increase in new orders could be a result of manufacturers front-loading output in anticipation of tariff hikes from the United States and China that are slated to take effect on Dec 15, he added.

He said the consumer electronics sector will be hit the hardest by the levies, adding: "Of course, the concern would be whether the tariffs would eventually affect the manufacturing sectors again next year."

UOB economist Barnabas Gan said the improvement in the overall PMI provides some cautious optimism that the manufacturing sector is on track to stabilise in this quarter after the relatively weak performance in the first half of the year.

The slight improvement in the factory output index - 50.4 for August compared with 50.2 in July - suggests that overall industrial production is slated to recover further for the month, he added.

The PMI for the electronics sector also recorded a 0.1 point increase from July to 49.4 last month, although it is still in contraction for the 10th consecutive month.

 
 

OCBC Bank head of treasury research and strategy Selena Ling said the electronics index probably reflected concerns over trade, with new tariffs coming into effect on Sept 1.

She added that unless trade talks resume in Washington later this month, "there is little prospect of a near-term pickup heading into the seasonal Christmas period".

Singapore has not been the only country with shrinking factory activity last month, Ms Ling noted.

She said that while China's Caixin PMI recovered to 50.4 last month from 49.9 in July, manufacturing PMIs remained in contraction territory for countries such as South Korea and Indonesia.

A version of this article appeared in the print edition of The Straits Times on September 04, 2019, with the headline 'S'pore factory activity remains in contraction'. Print Edition | Subscribe