Singapore PMI stays flat at 50.8 in Oct following 2 months of slowdown

SINGAPORE'S overall manufacturing sentiment stayed flat in October, bringing a pause to the slight slowdown the sector had seen in recent months.

The purchasing manager's index (PMI) stood at 50.8 in October, unchanged from the previous month, according to the Singapore Institute of Purchasing and Materials Management (SIPMM).

While the PMI had been trending down since August, October marks its 16th straight month of expansion.

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

Meanwhile, the electronics sector PMI dipped 0.1 point to 51.1 in October, logging a decrease for the first time since May.

SIPMM attributed October's readings to the slower growth of key indices of new orders, new exports and factory output, which was offset by the indices of inventory, employment and supplier deliveries.

OCBC chief economist Selena Ling said the softening outlook for new orders and new exports suggests that external demand for both the manufacturing and electronics sectors may have peaked and are likely to subside once the Christmas rush is over.

Manufacturing momentum could ease into the first quarter of 2022, she added.

DBS senior economist Irvin Seah said there are some "emerging signs" that the manufacturing sector could be losing steam, but added that his "biggest worry" is China's slowdown.

"The overarching China slowdown story still dominates, and it could potentially have some implications for Singapore's manufacturing sector," he said, noting that China is the Republic's largest export market.

This applies likewise for the electronics sector, but he added that it is still "well-supported by very resilient global demand".

"But having said that, my concern is that typically by October, we should see some spike up because of the festive-season demand but instead, it actually dipped. So this is something that we need to keep a close watch on," he said.

Economists also point to signs of inflation, given the sustained increase in input prices for the 15th straight month for the manufacturing sector.

"Whether the input price increase arises from higher shipping costs or supply chain disruptions which have contributed to component shortages, it would still pressure profit margins if not passed on to consumers eventually," said Ling.

China's official manufacturing PMI however missed the mark and slid to 49.2, extending the slowdown that began in April. The Caixin PMI, derived from smaller private manufacturers, however, bounced 0.6 point to 50.6 in October.

"The increase in the Markit Caixin manufacturing PMI to 50.6 bodes well for exports. But in our view, the official PMI is a better gauge of overall conditions in the domestic economy," said Louis Kuijs, head of Asia economics at Oxford Economics.

He added that a detailed analysis of the official PMI survey points to an industrial slowdown caused mainly by weakening domestic demand, rather than domestic supply constraints.

South Korea's PMI fell to 50.2 in October, down from 52.4 in the previous month, with sentiment at its weakest since September 2020, according to IHS Markit.

"The latest data provided the first indication that sustained supply chain disruption had directly impacted activity. The impact of shortages has also been clear in rising raw material prices, with inflation accelerating to the quickest for three months," said Usamah Bhatti, economist at IHS Markit.

Taiwan's IHS Markit PMI logged a 0.5 point improvement to 55.2 in October. But even though there was a notable pickup in client demand, manufacturers struggled to meet the upturn in orders as shortages and supplier delays constrained output growth, said Annabel Fiddes, economics associate director at IHS Markit.

In South-east Asia, the IHS Markit Asean PMI rose to an all-time high of 53.6, thanks to an easing of Covid-19 measures that ushered in a rebound for the manufacturing sector.

"Across the constituent nations, growth was broad-based with the exception of Myanmar. Indonesia topped the growth rankings with a survey record PMI reading, followed by Singapore, Malaysia and Vietnam, with the latter two registering the first improvement in the health of their respective goods producing sectors since May. The Philippines and Thailand also recorded improved operating conditions in October," said Lewis Cooper, economist at IHS Markit.

Barclays economists said the PMI in emerging Asia could "move sideways" after the initial optimism from Asean countries' reopening fades.

The team cautioned that uncertainties from China remain a risk to watch for in the near term, even if the improved Covid-19 situation may provide a respite.

"Given the fluid situation as well as complexities in global supply chains, it is challenging to predict the timing of a meaningful resolution, as new issues continue to emerge even as old problems are being resolved," Barclays said.