Singapore PMI dips in the new year, echoing slowdown seen across Asia

SINGAPORE manufacturing sentiment eased slightly in the new year due to concerns over supply chain disruptions, echoing the slowdown seen across other key Asian economies.

The Purchasing Managers' Index (PMI) slipped 0.1 point to 50.6 in January, after rising slightly in the previous month, said the Singapore Institute of Purchasing and Materials Management (SIPMM) on Thursday (Feb 3).

Despite the slight decline, the manufacturing sector recorded 19 straight months of expansion with January's PMI.

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

The electronics sector PMI also saw a slight dip of 0.2 point to 50.8 in January, expanding at a slower rate compared to the previous month.

Sophia Poh, industry engagement and development vice-president at SIPMM, said: "The manufacturing sector braces for the new year with uncertainties arising from new Covid-19 variants, and the geopolitical developments that can disrupt supply chains.

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"Nonetheless, local manufacturers remain cautiously optimistic that growth will continue in the new year, and that the sector is well-positioned to ride out the crisis."

Both sets of numbers were attributed to slower expansion rates in the key indexes of new orders, new exports, factory output, inventory and employment.

For the overall PMI, only finished goods and input prices saw faster expansion rates. As for the electronics sector PMI, only finished goods and supplier deliveries saw a faster rate of expansion.

The supplier deliveries index of the overall PMI has seen 9 consecutive months of expansion, but this appears to be moderating amid rising concerns of supply disruption due to pandemic-related restrictions, said SIPMM.

The softer PMI comes as the manufacturing sector revealed dampened optimism for the next 6 months, according to the latest business expectations survey from the Economic Development Board.

Selena Ling, OCBC's head of treasury research and strategy, said moderation was not unexpected given the seasonal slowdown into the first quarter of the year after the peak Christmas orders.

Still, some areas of concern remain, as the slowing orderbook was accompanied by declining imports, supplier deliveries and employment, as well as rising finished goods stock, which Ling noted could be symptomatic of global supply chain bottlenecks.

With the supplier deliveries index still expanding, UOB economist Barnabas Gan said supplies have remained adequate even though disruption risks are magnified at this juncture.

Still, given that the index declined by 0.3 point to 50.1 in January, any further declines could bring it below the expansionary mark "indicating that some initial evidence of supply disruptions may be on the cards then".

Meanwhile, the IHS Markit Asean PMI remained unchanged from the month before at 52.7 in January, signalling a fourth successive improvement in the health of the manufacturing sector.

Of its 7 constituent Asean nations, only Myanmar recorded a deterioration in manufacturing conditions. Thailand, which saw a marginal decline in December, returned to expansionary territory with its headline index at 51.7.

IHS Markit economist Lewis Cooper said on the whole, companies in the Asean manufacturing sector remain optimistic that output will increase over the next year and are hopeful that the impact of Omicron on the sector will be mild.

China's official PMI fell to 49.1 in January, from 50.9 previously, as an uptick in Covid-19 cases there led to the introduction of fresh restrictions, which impacted the production and sales of manufactured goods.

Wang Zhe, senior economist at Caixin Insight Group, said: "It has become more evident that China's economy is straining under the triple pressures of contracting demand, supply shocks and weakening expectations.

"This year, policymakers should make stability their focus. They should prioritise improvements to employment and optimise the structure of the economy."

Taiwan's IHS Markit PMI dipped slightly to 55.1 in January, from 55.5 in the previous month. Annabel Fiddes, IHS Markit economics associate director, noted that a key driver of growth was robust export sales, with firms citing greater demand across key markets such as Europe, China and the United States.

In South Korea, the IHS Markit PMI rose to 52.8 in January, from 51.9 in December, signalling stronger improvement in the manufacturing sector. Even then, economist Usamah Bhatti noted that supply chain disruptions continue to hold back stronger recovery in activity and demand in the sector.

Barclays economists believe that the disruptions driven by China's recent Covid-19 outbreak are likely to be mild and should prevent an escalation in supply side risks.

"We believe the broader effects (of the Omicron variant on global supply chains) are likely to be mild and manifest mainly in cautionary price increases rather than meaningful output," they said.

"The relatively benign effects of China's recent Covid outbreak, at least so far, should support the ongoing slow recovery in supply side conditions, at a time when inventory stock replenishment and backlog clearing remain supportive at a global level."