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Singapore factory outlook stays glum in October despite PMI edging up
SINGAPORE'S manufacturing sentiment remained in the doldrums in October, with the Purchasing Managers' Index (PMI) edging up 0.1 point to 49.6, its sixth straight month in contractionary territory. A reading over 50 indicates expansion from the previous month, while one under 50 indicates contraction.
October's performance was boosted by factory output returning to expansion, faster expansion in inventory, and slower contraction in employment.
Coupled with September's "encouraging industrial production data" which surprised on the upside with 0.1 per cent manufacturing growth year on year, October's improved PMI "may mean that the beleaguered industry may be approaching a trough", said UOB economist Barnabas Gan.
But new orders and new exports went deeper into contraction, with the former's 49.7 reading being the lowest since August 2016. The poor performance of these two key gauges suggests "that a quick turnaround is unlikely to materialise in the near future just yet, barring a significantly improved global demand outlook on the back of a full resolution of US-China trade tensions and/or a pickup in the major economies such as Europe and China," said OCBC Bank head of treasury research and strategy Selena Ling.
Imports, input prices, finished goods and supplier deliveries saw faster expansion. But the order backlog index stayed in contraction for the 13th straight month, which Ms Ling said reflects that demand is the main problem, rather than supply capacity.
Anecdotal evidence suggests that several manufacturers have scaled back investment plans due to the "disconcerting" uncertain global trade environment, said Sophia Poh, vice-president for industry engagement and development at the Singapore Institute of Purchasing and Materials Management, which compiles the index.
The electronics sector PMI stayed in contraction for the 12th straight month, though improving 0.2 point to 49.3.
This was due to slower contraction in new orders, factory output, and employment, and faster expansion in inventory.
Faster expansion was also seen for finished goods, imports, and input prices. But supplier deliveries expanded slower, and both new exports and order backlog contracted faster.
With Singapore clearly avoiding a technical recession in the third quarter, market-watchers are likely anticipating a recovery in manufacturing momentum, said Mr Gan. Global trade uncertainties remain the wildcard, though further confidence could come from potential smooth negotiations between the United States and China for their phase one deal.
Yet despite the "stabilisation" of both the overall manufacturing and electronics PMIs, Ms Ling still expects manufacturing growth to be negative for the fourth straight quarter in the last quarter of the year, shrinking 2.3 per cent year on year.
"The upside for regional manufacturing activities may be capped, even though market hopes are rising for at least Phase 1 of the US-China trade deal to be signed fairly soon," she added. This is because China is still forecast to see slowing growth in 2020, while moving towards in-sourcing to reduce its reliance on external components.
In the region, the Markit Asean PMI fell to a four-year low, with only two of the seven constituent countries - Myanmar and the Philippines - seeing improvements. Thailand and Vietnam saw no change, while Singapore, Malaysia and Indonesia saw continued contraction.
The Caixin China PMI improved, in contrast to official PMI figures showing deterioration. Taiwan's PMI fell into contractionary territory, while South Korea's PMI remained in contraction, though improving.