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S'pore PMI back in expansion mode, but economists not swayed
SINGAPORE'S manufacturing sector is back in expansion for the first time in six months, according to the latest purchasing managers' index (PMI). But the turnaround is by no means convincing, with electronics contracting further and weak manufacturing and exports performance across Asia raising questions over global demand, economists say.
The PMI rose to a reading of 50.2 in May, up from 49.4 in April, crossing the 50-point mark that divides readings pointing to growth from those implying contraction.
After languishing at sub-50 levels for five straight months, it improved in May thanks to growth in new domestic orders, production output and inventory, said the Singapore Institute of Purchasing & Materials Management (SIPMM), which compiles the monthly index from its survey of purchasing managers at more than 150 manufacturing firms.
Barclays economist Leong Wai Ho sees this as an indication that the soft patch in the US that lasted from March to April is now fading.
"New orders seem to have driven the pick-up. This is a sign that the Asia-US supply chains are reverting to normal, after the three-month port strike in the US West Coast, which handles most of Asia's US-bound cargo," he said.
But he thinks another month of data is needed to confirm the turnaround, and others pointed out that data released this week paints a mixed picture of the global industrial cycle.
In the US, the Institute of Supply Management's manufacturing index picked up but the PMI reading from Markit fell. The Eurozone's PMI rose, but Germany's fell.
And while both the official and HSBC-Markit PMI surveys for China showed a rise in readings, the latter remained under 50 for a third month, signalling a deterioration in operating conditions in China's manufacturing sector.
Key manufacturing hubs Korea and Taiwan too, suffered further manufacturing contraction in May.
"A few PMIs ticked up in Asia, but others fizzled. What's most striking is that new export orders continue to deteriorate. At this stage, one might have expected them to show convincing improvement," said HSBC economist Frederic Neumann.
"One possibility is that weakening demand in Asia, particularly China, is starting to impact global numbers. The region has now become so large that softening demand in the East is offsetting any improvement - though admittedly gradual - in the West," he said.
For Singapore, there are other reasons to doubt that May's PMI heralds a better Q2 than April's poor production and exports data has suggested.
The May PMI sub-indices for new export orders and employment continued to contract.
"It's still not very clear if the current bounce in May will be sustainable, given that recent sentiment surveys and April industrial production and non-oil domestic exports data were not very encouraging," said OCBC economist Selena Ling.
A rise in the electronics PMI in May to a reading of 49.8, from April's 49.1, was also not enough to pull it above the 50-point mark, leaving the sector in a second straight month of contraction.
Falling new domestic and export orders for the sector also suggest that "the important electronics industry is not totally out of the woods yet", said Ms Ling.
Last week, the Economic Development Board said that the electronics cluster grew 1.2 per cent year-on-year in April, after four straight months of contraction.
But economists noted that this was in part due to low-base effects and that the vital semiconductors segment, which accounts for two-thirds of electronics output, shrank 7.2 per cent year-on-year.