Singapore electronics PMI contracts for the first time in 2 years amid region-wide slump

SINGAPORE’S manufacturing sentiment fell in August to its lowest point in 2 years, with the Purchasing Managers’ Index (PMI) for the electronics sector clocking the sharpest contraction since the start of the Covid-19 pandemic.

Electronics PMI tumbled 0.9 point to 49.6 in August, entering contraction territory for the first time since July 2020, said the Singapore Institute of Purchasing and Materials Management (SIPMM) on Friday (Sep 2). A reading below 50 on the index indicates contraction from the previous month; one above 50 means growth.

This is also the sharpest monthly drop the sector has recorded since April 2020. The reading was attributed to a contraction in the key indices of new orders, new exports, output and inventory, SIPMM said.

Meanwhile, overall PMI slid 0.1 point to 50 in August, the lowest reading since June 2020. This was due to a slower expansion in the key indices of new orders, new exports and employment, as well as a faster expansion in the supplier deliveries index.

“The speed at which the electronics industry has hit an air pocket is disconcerting, even though the direction was clear,” said OCBC chief economist Selena Ling, noting that tech research consultancy Gartner had recently slashed its 2022 global semiconductor revenue forecast to 7.4 per cent.

“Adding to the challenges are the US’ efforts to curb chip exports to China, with Nvidia Corp and AMD in the limelight recently due to company warnings after receiving notices from the US government. Other companies like Seagate Technology and Dell have also warned of more cautious customer buying behaviour,” she said.

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UOB senior economist Alvin Liew said the August readings are “consistent” with July’s non-oil domestic exports (NODX) and industrial output (IP) data.

“Specifically, we are cautiously positive on the outlook for transport engineering, general manufacturing, and precision engineering, to drive overall manufacturing growth, which likely explains why the headline PMI remains in expansion,” he said.

“But we are also cognisant about a potentially much slower electronics performance and weaker demand from North Asian economies that could increasingly weigh on NODX momentum and manufacturing demand,” he said.

Liew also noted that the electronics PMI was showing the same pattern of weakness seen in manufacturing PMI surveys in the region.

Indeed, the S&P Global South Korea Manufacturing PMI dropped 2.2 points to 47.6 in August; the S&P Global Taiwan Manufacturing PMI sank to 42.7 the same month, having fallen by 1.9 points.

Analysts pointed out that the deteriorating demand does bring a silver lining, as it has eased price and supply pressures – even if it is hardly a situation worth celebrating.

“While this is welcome news in terms of inflationary pressures easing after a period of rapid increases in costs, the data overall suggests a sector that is facing severe headwinds for it to be able to expand again,” Annabel Fiddes, economics associate director at S&P Global Market Intelligence, said of Taiwan.

“Notably, the lack of new work drove the steepest fall in backlogs for over thirteen-and-a-half years, and if new order intakes fail to pick up, firms will likely have to cut back further on output and reduce staff numbers in the month ahead,” she added.

Likewise, China’s Caixin PMI, derived from smaller private manufacturers, fell to 49.5 in August, from 50.4 in the previous month; but its official PMI inched up 0.4 point to 49.4 in the same period.

Dr Wang Zhe, senior economist at Caixin Insight Group, said the Covid-19 flare-ups, extreme heat wave and restricted power usage last month have resulted in a “slight deterioration” in overall business conditions.

“Chinese manufacturers remained optimistic. The degree of positive sentiment was unchanged from July, albeit below the historical average,” he said. “Concerns were raised by firms regarding the resurgence of Covid-19 and a deteriorating global economic outlook.”

Meanwhile, countries in South-east Asia fared better, with Indonesia, Malaysia, the Philippines and Thailand all seeing PMI in expansion territory.

Barclays’ economists said domestic demand is offering some offset in the south, even as weaker external demand is beginning to weigh on manufacturers’ sentiment, especially in North Asia.

“We think sentiment could weaken further in the coming months due to softer expectations for China’s growth, while US consumer spending also seems to be slowing,” said the Barclays team.