Electronics PMI sinks to lowest since December 2012 on coronavirus fears

THE coronavirus outbreak has cast a pall on Singapore's manufacturing and electronics sentiment in February, even though both were on the brink of recovery just a month ago.

The Purchasing Managers' Index (PMI) for the electronics sector sank 2.5 points to record a contraction of 47.6 in February, reversing January's optimism and ending the brief one-month reprieve that came after 14 straight months in the dumps, according to the Singapore Institute of Purchasing and Materials Management (SIPMM) on Tuesday.

A reading above 50 on the index indicates growth from the previous month, while one below 50 means contraction.

February's electronics PMI is the worst showing since December 2012, when the reading was 46.6. It is also the biggest drop in a month since October 2012.

SIPMM attributed this reading to first-time contractions for the indexes of new orders, new exports, factory output, inventory and employment.

Meanwhile, February's manufacturing PMI lost 1.6 points from January's positive reading to record a contraction of 48.7.

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign UpVIEW ALL

This is the first contraction after two months of expansion for the overall manufacturing sector, which had seen eight consecutive months of contraction month prior. It is also the lowest figure since February 2016 when the reading was 48.5.

SIPMM said the latest manufacturing PMI reading is attributed to first-time contractions for the key indicators of new orders, new exports, factory output, inventory and employment. The indexes of imports, input prices, supplier deliveries and order backlog, recorded first-time contractions whereas the finished goods index posted a slower rate of expansion, it added.

However, the bigger underlying reason for the pessimism clouding both PMI readings is the coronavirus outbreak.

Sophia Poh, vice-president for industry engagement and development for SIPMM, said: "The Covid-19 outbreak that accelerated at the end of January had disrupted global supply chains and impacted the manufacturing sectors. Manufacturers are increasingly concerned about the extent of this disruption especially when the rate of infections are increasing worldwide."

The virus first emerged in Wuhan, China in late December and has gone on to sicken over 90,000 people in the last two months, most of them in China. While the rate of infection appears to be slowing down in China, the outbreak appears to be worsening in other parts of the world, including Italy, South Korea and Iran.

The poor showing on both PMI readings came as no surprise to economists.

Selena Ling, chief economist at OCBC Bank, said while the numbers are low, "they are not as disastrously low as what we saw for its China counterparts".

Irvin Seah, senior economist at DBS Bank, said these figures provide a glimpse of what is to come in the next two weeks, in terms of Singapore's non-oil domestic export (NODX) and industrial production figures, which he believes will be "dreadful".

"This is mainly driven by the supply chain disruption in China, but the key focus really is how long this will last," Mr Seah said.

High frequency data appears to suggest that production in China is gradually resuming back to normalcy, even though the numbers are still way below their utilisation capacity, he said.

"The risk is that this outbreak has spread to other parts of the world. This will definitely weigh down on global consumption sentiment, and this will have a knock-on impact on Singapore's export performance," he said.

Barnabas Gan, economist at the United Overseas Bank, said further decline in Singapore's PMI readings could persist especially given the recent intensification of Covid-19 concerns.

The fall in PMI readings in February added to the list of negative economic indicators, suggesting that growth headwinds may likely persist at least in the first half of 2020, he said.

He said: "We reiterate our call for the Monetary Authority of Singapore to ease policy to neutral, down from a currently perceived +0.5 per cent appreciation slope."