Manufacturing in Singapore off to a weak start in 2015

Shrinking new orders, inventory cited as primary factors; outlook may remain tepid in coming months: economists


SINGAPORE's manufacturers had a subdued start to the new year, with the latest purchasing managers' index (PMI) signalling that industrial activity shrank for a second straight month in January. And economists expect the outlook to remain tepid in coming months.

Even though the barometer of manufacturing activity inched upwards to a reading of 49.9, from December's 49.6, this was still under the 50-point threshold dividing readings that point to contraction from those indicating growth.

Singapore's PMI follows a mixed bag of global and regional PMIs. While the eurozone's PMI strengthened and the United States' continued to show expansion, China's readings were disappointing.

The official PMI - skewed towards large Chinese companies - showed a contraction for the first time in close to 21/2 years, while China's HSBC/

Markit PMI fell below expectations to a sub-50 reading, indicating contraction.

But Singapore's Asian peers Taiwan and South Korea posted expansionary PMI readings that were stronger in January. "Taiwan and Korea both saw some improvement, as large handset makers prepared to launch new models from February. Singapore is not benefiting from that initial demand, although we would expect any sustained pick-up in their purchasing activity to eventually benefit us," said Barclays economist Leong Wai Ho.

Overall prospects of a strong pick-up in manufacturing activity over the next few months remain rather dim though.

The primary factors behind the still-contractionary PMI reading were contracting new orders and inventory, said the Singapore Institute of Purchasing and Materials Management (SIPMM), which compiles the PMI monthly from its survey of purchasing managers at more than 150 industrial companies.

"This fits in with our view that manufacturing activity should be quite weak in the near term," said Credit Suisse economist Michael Wan. He believes the oil price fall has had a negative and immediate impact on oil-related manufacturing businesses such the offshore and marine, and petrochemical sectors.

The subdued reading was also no surprise to OCBC economist Selena Ling, who noted that the recent official business expectations survey showed that more manufacturers expect a weaker business outlook in the first half of this year, than those expecting improvement.

One "potential bright spot" is the electronics sector, she said. Singa-pore's electronics PMI held steady at a reading of 50.5 in January, thanks to an improvement in new export orders and output.

But CIMB Research economist Song Seng Wun thinks "Singapore's tech manufacturers could be in for another choppy year". That is because the electronics employment sub-index has declined for a third straight month to a reading of 49.1, and backlog orders have contracted for a sixth consecutive month now, he said.


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