Singapore PMI inches up in January but remains in contraction for 5th straight month

SINGAPORE’S overall factory activity improved modestly in January but remained in contraction territory for the fifth straight month, lagging behind regional peers.

The Purchasing Managers’ Index (PMI) inched up 0.1 point to 49.8 last month, data from the Singapore Institute of Purchasing and Materials Management (SIPMM) showed on Thursday (Feb 2). A reading below 50 indicates contraction from the previous month; one above 50 means growth.

Electronics sector PMI edged up 0.2 point to 49.1 in January, marking the sixth consecutive month of contraction.

SIPMM attributed both sets of readings to a slower contraction in the key indices of new orders, new exports, factory output and inventory, and in the case of the electronics PMI, employment as well.

OCBC chief economist Selena Ling believes the PMI improved on the back of China’s reopening, a pick-up in aviation maintenance, repair and operation activities as well as maritime transport for oil and gas projects

Despite the slight improvement though, economists said they remain unconvinced that the manufacturing sector will be seeing better days soon.

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“The small uptick in January’s overall and electronics PMIs was a surprise to us but does not change our negative view for manufacturing in 2023,” said UOB senior economist Alvin Liew.

This is because most sub-indices remain in contraction against the backdrop of weaker external demand and the electronics down cycle, said Liew, adding that this is “typically a bad combination” for trade-reliant economies with a significant share of electronics manufacturing, such as Singapore, South Korea and Taiwan.

“We expect the official and electronics sector PMI for Singapore to stay in contraction territory in the first three months of 2023 and the weakness to extend at least another quarter, or even two,” he added. He is expecting manufacturing to contract 5.4 per cent this year.

Concurring, Ling said: “The saving grace is that the electronics industry may have hit bottom in the near-term even if there is no quick turnaround story, mainly because the US-China chip war is still ongoing.”

Singapore’s PMI readings mirrored the negative sentiment in South Korea and Taiwan, both of which were in contraction.

The S&P Global Taiwan Manufacturing PMI slipped 0.3 point to 44.3 in January, as business conditions continued to deteriorate sharply across the territory’s manufacturing sector.

“The business mood meanwhile remained sombre, with firms generally anticipating output to fall further over the next 12 months,” said Annabel Fiddes, economics associate director at S&P Global Market Intelligence. “This led companies to trim their buying activity and inventories, and constrained recruitment across the sector.” 

South Korea saw PMI rise 0.3 point to 48.5 in January, signalling seven months of deterioration.

New orders received by South Korean manufacturers fell sharply, largely due to subdued economic conditions at key trading partners, high inflation and high interest rates, companies surveyed said.

“The immediate outlook for the South Korean manufacturing sector appears challenging,” said Usamah Bhatti, economist at S&P Global Market Intelligence. “That said, firms remained confident that global economic conditions would improve and stimulate demand. In advance of a predicted return in growth, manufacturers raised employment levels for the first time since last April.”

China’s Caixin PMI, derived from smaller private manufacturers, rose 0.2 point to 49.2 in January, with firms expressing the strongest optimism since April 2021 about their 12-month outlook for output. Its official PMI returned to expansion territory for the first time in four months at 50.1, an improvement of 3.1 points from December.

But Barclays economists believe the technical rebound in China’s official PMI may “mask underlying weakness”.

“We think manufacturing sectors are still under pressure on weakening external demand. In particular, many export-oriented factories either closed earlier or resumed production later than normal this year,” said the Barclays team, referring to factories in Zhejiang, Hebei, Shandong and Hubei.

Still, the positive spillover from China’s reopening has offered some support to economies in South-east Asia, Barclays noted.

The S&P Global Asean Manufacturing PMI hit a three-month high of 51 in January, an improvement of 0.7 point from the previous month.

Four of the seven Asean nations monitored by the survey registered growth across their manufacturing sector in January, up from three in the month before. Thai manufacturers in particular reported the sharpest improvement in business conditions, topping the rankings for the first time in 17 months.

Even so, Maryam Baluch, economist at S&P Global Market Intelligence, noted that the pace of expansion across the manufacturing sector was mild and slower than last years’ average, primarily as demand conditions have softened.

Barclays economists also noted that the positive spillover from China’s reopening is unlikely to drive a significant improvement immediately.

Said the team: “We believe China’s reopening is likely to benefit the services sector through the tourism channel, while manufacturing sector benefits are likely to be relatively limited, given the backdrop of soft global growth.”