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Singapore factory outlook falls to 3-year low in September as new orders shrink

SINGAPORE manufacturing sentiment fell to its weakest in more than three years in September, in an early measure of third-quarter trade and factory production numbers.

The monthly Purchasing Managers' Index (PMI) reading was down by 0.4 point from August, to 49.5 - the index's fifth month in negative territory, and its lowest mark since July 2016. Readings below 50 indicate contraction, while those over 50 point towards expansion.

The latest slump in overall outlook came on faster contraction in employment and new exports, while new orders and factory output receded into the negative zone, according to the Singapore Institute of Purchasing and Materials Management (SIPMM), which compiles the data. The reading for new orders, in particular, was at its lowest since August 2016.

Meanwhile, the PMI for the linchpin electronics cluster showed a contraction for the 11th month, with the reading dipping by 0.3 point to 49.1, as new orders shrank more rapidly than before.

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Order backlogs were down across manufacturers - for the 17th straight month in electronics, and the 12th month overall - even as inventory, finished goods stocks and imports expanded.

Sophia Poh, vice-president of industry engagement and development at SIPMM, said in the PMI report: "The prolonged uncertainties in the major global markets have weakened demand and increased cost pressures on local manufacturers, and are further aggravated by disruptive global supply chains."

Cost pressures had not been mentioned in the August report, which instead cited global trade uncertainties.

The latest blow comes after factory output dropped by 8 per cent year-on-year in August, fuelling fears of a technical recession in Singapore - that is, two straight quarters of quarter-on-quarter contraction.

United Overseas Bank economist Barnabas Gan earlier warned that the Republic could slip into technical recession if factory output were to decline by 4.5 per cent or more in September.

As contractionary PMI prints corresponded with shrinking industrial production in the last four months, the recession risk remains and "the data highlights that Singapore's manufacturing sector remains negatively affected by the lacklustre external environment", he has now said.

Selena Ling, OCBC Bank's chief economist, also cautioned that contagion is spreading beyond factories, as "we're starting to see the second-round effects on consumer sentiment and other services sectors.

"This may translate to some softness in the labour market ahead and is something that policymakers are probably watchful for," she said, warning that growth outlook for 2020 could be the next downgrade on the table - after cuts to 2019's forecasts - "if the sluggish momentum persists" past year-end.

Separately, Singapore-based economists Chua Hak Bin and Lee Ju Ye from Maybank Kim Eng had said in a note on Wednesday that the "outlook for manufacturing and exports for the rest of the year remains bleak, and a recovery will very much depend on a US-China trade deal".

Outside Singapore, other regional economies - including Indonesia, Malaysia and Taiwan - saw improved manufacturing sentiment in September, but remained in contraction or stalemate, based on IHS Markit polls. Meanwhile, purchasing managers in Thailand and Vietnam still indicated growth in September, although the optimism was fading in Vietnam.

But China's private-sector Caixin/Markit survey of manufacturers showed the second straight month of expansion, with a rapid one-point increase to a PMI reading of 51.4, as domestic demand recovered.

Barclays had noted in a report on Wednesday that sentiment in Asian emerging markets could see a slight uptick on hopes of a resolution to the trade war between the US and China, as well as some uplift from possible trade diversion to markets like Malaysia and Taiwan.

Still, analysts Iaroslav Shelepko and Akash Utsav said: "Despite a temporary improvement in external demand, we expect production to remain subdued, as businesses are more likely to fade inventories amid the still-uncertain trade outlook."