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S'pore Sept factory output misses mark

Unchanged PMI of 50.5 also contrasts with signs of improvement across Asia
Thursday, October 3, 2013 - 06:00

[SINGAPORE] Singapore's purchasing managers' index (PMI) yesterday pointed to a further slowdown in new export orders, echoing the less-than-stellar manufacturing data from the region earlier this week.

This latest round of PMIs also casts more doubt on the sustainability of Asia's industrial recovery, which is still in need of a strong catalyst for demand, economists say.

Singapore's monthly barometer of industrial activity read 50.5 for September, unchanged from August's reading, but fell short of the market's consensus forecast for a reading of 51.2.

The stagnation of Singapore's overall PMI stood in contrast to signs of improvement across Asia. Most of the region's economies reported PMIs above the 50-point threshold which suggest expansion, except for South Korea and India, whose PMIs inched closer to the 50-point line but still pointed to contraction.

Singapore's new exports also showed a slower pace of growth, whereas key Asian exporters such as China and Taiwan's new exports picked up steam, while Korea's shrank at a slower pace. However, Singapore's new exports sub-index of 51.1 was not far from Taiwan's 51.8 and above China's 50.7.

"Things are stabilising, but Asia isn't exactly flying yet. We barely have lift off. . . Look under the hood, and the numbers are not quite where they need to be," Frederic Neumann, HSBC's co-head of economic research, wrote in a research note yesterday.

DBS economist Irvin Seah agreed: "The sustainability of the improvements in regional PMIs remain questionable due to a lack of positive catalyst. The US recovery hasn't been as strong, which prompted the Fed to push back its QE (quantitative easing) tapering. Europe remains fundamentally fragile despite being technically out of recession. Asia is undergoing internal consolidation, particularly in China, which makes for slower growth, weaker regional demand."

At best, regional manufacturing's trajectory in the next few months may be flat - despite an anticipated rise in demand from year-end festive orders - and Singapore's manufacturing sector will be no exception, Mr Seah said.

The poorer-than-expected PMI comes atop Singapore's poor manufacturing and exports reports for August, which earlier led economists to warn that the Republic's Q3 gross domestic product (GDP) may fall by as much as 5 per cent quarter on quarter.

Local manufacturers are facing a "double whammy" from economic restructuring and the lack of a strong cyclical lift in demand, Mr Seah said.

However, Barclays economist Joey Chew cautioned that the trend Singapore's overall PMI takes is often harder to explain and gel with global or regional PMI movements, since its pharmaceutical and rig-building sectors contribute significant volatility.

In her view, the electronics PMI tells a clearer story of front-loaded growth. Singapore's electronics sector's PMI fell to 50.3 from August's reading of 51.3, disappointing market expectations for a reading of 50.7.

"When US manufacturing and PMIs in the other Asia newly industrialised economies fell in Q2, Singapore's electronics PMI was remarkably resilient. There were strong orders placed through Q2, but I guess these orders were not entirely backed by actual external demand, which weakened in Q2," she said.

Now that PMIs are picking up globally, led by the United States, Singapore's lack of a rebound should not be surprising since it did not fall in the first place. "In fact, we are going through an inventory correction phase now," Ms Chew added.

Despite falling orders both domestic and overseas, Singapore's production sub-index improved in September. This could be because new orders have been growing, while inventories have been shrinking. "As this has persisted for a number of months, it's likely that manufacturers had to increase production to meet orders, rather than liquidate stocks to meet them," said ANZ economist Daniel Wilson.

He noted that the input price sub-index rose to 54.3 in September from 52.5 in August. "The climb in input prices signals there are still cost pressures building within the economy and adds further evidence that MAS (Monetary Authority of Singapore) will maintain an appreciation path for the SGD NEER (Singapore dollar nominal effective exchange rate) at the policy meeting in October," said Mr Wilson. This is also the market's consensus view.

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