Singapore PMI ends 2021 on higher note amid overall improving sentiment in Asia

SINGAPORE manufacturing sentiment ended 2021 on a hopeful note amid improving economic conditions, echoing the rising optimism elsewhere in Asia.

The Purchasing Managers' Index (PMI) inched up 0.1 point to 50.7 in December, following a brief dip in the previous month and marking 18 straight months of expansion, said the Singapore Institute of Purchasing and Materials Management (SIPMM) on Tuesday (Jan 4).

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

The electronics sector PMI rose even faster with an increase of 0.2 point to 51, remaining firmly in expansion territory for the 17th consecutive month.

Sophia Poh, industry engagement and development vice-president at SIPMM, said: "The latest PMI readings bode well for the manufacturing sector, despite the heightened concern about the Omicron Covid-19 variant, and the effect of disruptive supply chains."

Both sets of numbers were attributed to slightly faster expansion rates in the indices of new orders, new exports, factory output, inventory and employment. These helped to offset the slower expansion rates in the indices of input prices, supplier deliveries and order backlog, and, in the case of overall PMI, the finished-goods index as well.

The good showing comes on the heels of better-than-expected growth in the fourth-quarter and full-year gross domestic product (GDP) announced on Monday.

Said OCBC chief economist Selena Ling: "The Q4 GDP growth estimates already reflected the strong manufacturing performance for October to November, so the December PMI does not come as a big surprise. Should Omicron blow over quickly, the healthy manufacturing and electronics momentum may sustain well into Q1 2022."

UOB economist Barnabas Gan noted that the supplier deliveries index, which has continued to expand for 8 straight months, suggests "there remains little evidence of a supply chain disruption" from pandemic-related restrictions.

"This was unlike the contraction in the supplier deliveries index for 9 straight months between March and October 2020, during which supply chain disruptions were materially tangible then," he added.

Gan said he expects full-year manufacturing, a key economic support pillar in Singapore, to grow an average 4 per cent in 2022, underpinned by the buoyant global trade activity expected in the year.

Meanwhile, the IHS Markit Asean PMI rose to 52.7 in December, from 52.3 the previous month; IHS Markit said this was indicative of "an accelerated pace of improvement that was the second-fastest on record".

It noted that 5 of the 7 constituent Asean nations recorded improvements in their PMI; only Thailand charted fresh deterioration as its PMI slipped below 50 for the first time since September. Myanmar remained in contraction for the 16th month.

IHS Markit economist Lewis Cooper said that while growth in Asean was led by sustained rises in output and new work, inflationary pressures also intensified slightly, due to ongoing supply problems.

"Nonetheless, firms' expectations for output over the coming year improved on the month, with sentiment the strongest since May 2019," said Cooper.

China's official PMI unexpectedly rose to 50.3 in December, up from 50.1. The Caixin PMI, derived from smaller private manufacturers, recorded a larger improvement at 50.9, up from 49.9 in November.

Wang Zhe, senior economist at Caixin Insight Group, said: "Manufacturing demand and supply improved in December with easing inflationary pressure. But the job market was still under pressure and businesses were less optimistic, indicating unstable economic recovery. The repeated Covid-19 flare-ups and sluggish overseas demand were factors of instability."

Taiwan's IHS Markit PMI rose to 55.5 from 54.9 in November, but Annabel Fiddes, IHS Markit economics associate director, noted that shortages of key components continued to weigh on firms' abilities to process and finish orders, which drove a further steep increase in backlogs.

In South Korea, the IHS Markit PMI went up to 51.9 in December, from the previous month's 50.9. IHS Markit senior economist Joe Hayes said while the new orders rose in December at the fastest rate in 3 months, the overall expansion was subdued compared with the first half of 2021 on the back of a global rise in Covid-19 infections and poor shipping container availability.

Barclays economists believe regional PMIs would likely "move sideways" in the near term as manufacturers assess risks from Omicron and China's Covid-19 policy.

"While the negative impact from the recent Xi'an lockdown in China and flooding in Malaysia may be short-lived and manageable, Omicron developments and China's zero-case tolerance policy, especially ahead of the Chinese New Year and Winter Olympics, remain risks, which may keep manufacturing PMIs moving sideways in the near-term," Barclays added.