Optimism among Singapore manufacturers may suggest recovery

SINGAPORE'S manufacturers appear to be optimistic about business prospects, with September's Purchasing Managers' Index (PMI) remaining in expansionary territory for the third straight month.

September's reading had a faster expansion at 50.3, inching up 0.2 point from August, according to data from the Singapore Institute of Purchasing and Materials Management (SIPMM).

Readings above 50 indicate expansion, while those below connote contraction.

The latest PMI reading was attributed to first-time expansion in the new orders index, and faster rates of expansion in the indices of new exports and factory output, SIPMM said.

While most indices posted a positive reading, the employment index continued to stay firmly in contraction - for the eighth consecutive month - with a reading of 48.8, even though this is a 0.2 point improvement from August.

Barnabas Gan, economist from UOB, said this suggested that hiring sentiments remain soft, adding that labour conditions are expected to weaken further for the rest of the year, following the tapering of subsidies under the Job Support Scheme into the fourth quarter of 2020.

Even so, Sophia Poh, vice-president of industry engagement and development at SIPMM, said the PMI on the whole shows an upbeat reading, which augurs well for the overall manufacturing sector.

"Despite continuous weak employment readings, manufacturers are becoming more optimistic and in anticipation of the next reopening phase for all businesses," she added.

Meanwhile, the electronics sector PMI posted its highest reading in two years to hit 50.9, an increase of 0.3 point from the previous month. This is also the sector's second straight month of expansion.

SIPMM attributed September's reading to faster rates of expansion for the indexes of new orders, new exports, and factory output.

Selena Ling, chief economist at OCBC, said the uptick in new orders, new exports and outputs for the electronics sector bodes well for the coming months, although the traditional rush of Christmas orders in Q4 is likely to be more subdued than previous years due to the weak global economy grappling with the Covid-19 pandemic.

On the whole, UOB's Mr Gan said, both sets of data reinforces his view that a recovery is taking place, reflecting a rosier economic backdrop compared to when the PMI was in contraction between February and June.

"Coupled with the positive growth momentum in Singapore's NODX (non-oil domestic exports) and manufacturing environment, we maintain our view that the trough in Singapore's economic performance is likely seen in Q2, with GDP (gross domestic product) pencilled to contract by a smaller margin of 5 per cent for this year," he said.

OCBC's Ms Ling has a more cautious view, given that employment is still in contractionary territory, and both imports and inventory gauges are "a tad lower".

"(It) could suggest while manufacturers are becoming more upbeat in anticipation of the Phase 3 opening, it may be too early to break out the champagne, especially since the upcoming US elections may pose an event risk and US-China tensions persist," she sad.