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S'pore's November PMI bullish, but not convincing

Headline PMI at 51.8 trumps disappointing regional readings but electronics index hits six-month low

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THE better-than-expected expansion in Singapore's Purchasing Managers' Index (PMI) in November may prove to be deceptive. While the Republic's latest 51.8 showing trumped a slew of disappointing regional PMI readings, economists expect Singapore to catch the cold eventually, and weaken in tandem (see infographic).

This is especially since the electronics PMI fell sharply in November, dropping 1.9 to 50.6 - the largest month-on-month decline in two years, and a six-month low - a potential harbinger of tougher times ahead.

In fact, unconvinced by last month's relatively resilient overall PMI reading - a slight dip of 0.1 from October's 31/2-year high of 51.9 - economists told The Business Times that Singapore is likely to "catch down" with the rest of Asia soon.

Said Mizuho economist Vishnu Varathan: "Singapore's manufacturing sector is still liable for some soft patches - things have just been masked this time by the non-electronics (clusters). We're also very tightly linked to Asia's supply chain, so given the softness we've seen in the rest of the region, there could still be a lagged effect on us later on."

November's PMI reports were largely dismal across Asia - particularly so in Indonesia, South Korea and China - suggesting that the region's manufacturers continue to struggle.

Here in Singapore, the overall PMI reading of 51.8 was stronger than the market's expectation of 51.5. But at 50.6, the electronics sector disappointed - economists polled by Bloomberg prior to the data release had been anticipating a reading of 52.1. A reading above 50 denotes an expansion in the manufacturing sector, and one below 50, a contraction.

The Singapore Institute of Purchasing & Materials Management (SIPMM) said on Tuesday that new export orders in the electronics sector contracted for the first time after having recorded over 22 consecutive months of expansion. All sub-indices for the electronics PMI were down from October as well, save for prices and and deliveries.

Said CIMB economist Song Seng Wun: "The declines were across the board . . . Not a pretty picture for Singapore tech exports, and it points to stagnant global demand from automotive to household appliances."

As for the expansion in the overall PMI, SIPMM attributed this to further increases in new orders and new export orders - up 0.4 at 53.3 and 0.7 at 52.2 respectively.

This is in stark contrast to the electronics sector's order indices - electronics new orders decelerated significantly, dropping 2.8 to 50.4. There was also an outright contraction in electronics new export orders, down 1.8 at 49.1.

Said Mizuho's Mr Varathan: "The upshot may be that Singapore's overall manufacturing sector appears to be flattered by non-electronics (clusters), though actual exports performance is still broadly in sync with China's PMI, which remains lacklustre . . . The broader point is that the expansion signal is hollow consolation, as global demand remains subdued, if not sub-par."

Added Standard Chartered economist Jeff Ng: "The recent slowdown around Asia does seem to have some downward impact on manufacturing as a whole. In the near term, growth in China, Japan, Indonesia and Malaysia remains in consolidation mode, so it is unlikely to boost Singapore's externally led manufacturing soon."

DBS's Irvin Seah also thinks that 2014's Christmas is shaping up to be a relatively quiet one for manufacturers. "It suggests a weaker end to 2014, and this may even extend into the early part of next year," he said.

In line with a projected slowdown in the global economy, Singapore's Ministry of Trade and Industry signalled last week that it expects growth to "ease slightly" for the rest of this year. It expects fourth-quarter GDP (gross domestic product) growth of 2.2 per cent year on year - slower than Q3's 2.8 per cent expansion.