S'pore June PMI slumps, putting aside talk of 'green shoots'

Singapore

AFTER holding up in the past few months, conditions in Singapore's manufacturing worsened in June, prompting some economists to put aside talk of "green shoots" for the sector and forecasting that its performance this year will be worse than last year's.

Said DBS economist Irvin Seah: "Those looking for green shoots in manufacturing may eventually be looking at weeds instead."

"The talk has been overhyped, and now it's a pull back to reality. In fact, production levels this year will likely be lower than last year's," he added.

June's purchasing managers' index (PMI) for the sector came in at 49.6, said the Singapore Institute of Purchasing & Materials Management (SIPMM), which compiles the data, on Monday.

A reading above 50 signals expanding activity from the previous month, while anything below indicates contraction.

This undershot expectations. An earlier Bloomberg poll saw economists predicting June's PMI to come in at 49.8. June's number would extend the sector's contraction into a 12th straight month.

Yet, recent uptick in the PMI had initially gotten some economists speculating that the situation was on the mend.

February's PMI was at 48.5 - the lowest in three years. It then swung up to 49.4 in March, and then inched up higher in April to 49.8. It kept at the same reading in May.

But PMI numbers do not take into account seasonal effects, thus resulting in the uptick, said Mr Seah.

With many manufacturers here supplying components to their Chinese counterparts, February's low PMI dipped as they had to slow down production for the Lunar New Year.

The PMI spike in the later months was thus representative of factories ramping up production to meet regional demand.

But economists, in noting that the recent upturn seen in regional PMIs have stayed "flattish", cautioned against reading too much into their performance.

Hence, June's data for Singapore showed that there were problems with "demand-supply fundamentals", said OCBC economist Selena Ling.

The production index fell to 49.4 from May's 50.1, she noted. New orders retreated farther to 49.2 from 49.7 previously. The slump in export orders deepened to 48.9 from 49.4 in the preceding month.

And as the ramp up from a Lunar New Year lull wore off, manufacturers here were left to deal with the effects of a slowdown in global growth.

Singapore's government had already dimmed its growth forecast for 2016. It flagged in late May increasing challenges coming out from China, the United States and the Eurozone.

A recent vote by the United Kingdom favouring it leaving the European Union did not help matters, noted economists.

Though the immediate impact of this vote, termed as "Brexit", remains to be seen, the vote will hit business confidence and trade levels, and Singapore's manufacturing will suffer from it, said DBS' Mr Seah. "China's restructuring and Brexit will erode confidence, and production will settle at a lower level," he said.

"Domestic business confidence is likely to remain subdued in the near-term, especially in the wake of the Brexit-induced uncertainties. It remains unclear if the domestic manufacturing and electronics will resurface above the 50 handle anytime soon," said OCBC's Ms Ling.