Singapore February PMI saw sharpest fall in 2 years, Ukraine crisis to weigh on regional sentiment

SINGAPORE'S manufacturing sentiment in February saw its sharpest decline in nearly 2 years, due in part to seasonal reasons, although firms also appear to have been spooked by the escalating tensions between Russia and Ukraine.

The Purchasing Managers' Index (PMI) fell 0.4 point to 50.2 last month, according to the Singapore Institute of Purchasing and Materials Management (SIPMM) on Wednesday (Mar 2).

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

While February's reading marks the 20 months of expansion, it is also the biggest drop since April 2020, when the PMI fell 0.7 point to 44.7 due to mounting fears of Covid-19.

The electronics sector PMI fell 0.3 point to 50.5, making February the 19th month of expansion for the sector.

In both cases, the readings were attributed to slower growth in the indices of new orders, new exports and factory output, and in the case of the overall PMI, employment as well.

UOB economist Barnabas Gan said these expansions suggest however that Singapore's manufacturing and exports environment continued to be buoyant despite the Chinese New Year lull period, adding that the decline in PMI was likely due to seasonal factors.

OCBC chief economist Selena Ling said the moderation for both figures was "somewhat expected", given the seasonal slowdown and market headwinds like the Russia-Ukraine conflict. SIPMM's survey was conducted from Feb 15 to 25, with the cut-off for responses coming a day after Russia invaded Ukraine.

However, the output gauge for the electronics industry, which slid to 50, hints at faltering growth in the months ahead, Ling warned.

"The driver for this could be a combination of the ongoing chip shortage now potentially exacerbated by the current Russia-Ukraine conflict which could impact Ukraine's neon exports," she said.

Neon is an integral gas used in lasers to etch hyperfine circuit patterns onto silicon wafers, Ling noted, and one company in Odessa, a city in southern Ukraine now under attack by Russian forces, supplies 65 per cent of the world's neon.

All these factors considered, Ling said there is now greater downside risk attached to Singapore's official outlook of 3-5 per cent growth.

UOB's Gan said his view that the manufacturing sector is a key economic support pillar remains unchanged despite the decline in PMI, and he is expecting full-year manufacturing to grow by an average 4 per cent, underpinned by the "buoyant global trade activity" expected ahead.

"Notwithstanding the positive outlook, we are cognisant of near-term inflation risks on the back of possible supply disruptions, especially given the geopolitical noise in the backdrop amid higher oil prices," he said.

Elsewhere, PMI readings in most parts of Asia, other than Taiwan and Indonesia, saw an improvement, but Barclays economists called this a "false dawn", given that the surveys, which were mostly conducted from Feb 10 to 18, likely did not capture the spillover impact from the Ukraine crisis.

"While the region's direct exposure to the conflict in Eastern Europe stems primarily from higher crude oil prices, the resultant increase in LNG (liquefied natural gas) costs, basic foods, fertiliser costs and also some specific metals and minerals could trigger a negative macro impact both through higher inflation and shocks to manufacturing, especially if the war is prolonged," the Barclays team said.

China's official PMI rose to 51.2 in February, up from 50.1. The Caixin PMI, derived from smaller private manufacturers, was 50.4, up from 49.1 in January.

"Despite the better-than-expected February headline PMIs, a careful examination of data details suggests that domestic demand still remains under pressure, both for manufacturing and services," said Bank of America economists.

In South Korea, the IHS Markit PMI rose from 52.8 to 53.8 in February, the highest in a year.

"South Korean manufacturers were positive that the risks posed by ongoing shortages and disruptions would ease and allow for a broad recovery in demand," said Usamah Bhatti, economist at IHS Markit.

The IHS Markit Asean PMI inched down to 52.5 in February, from 52.7.

Lewis Cooper, economist at IHS Markit, said while manufacturers were upbeat about the outlook for output, sentiment was at a 6-month low due to cost pressures, supply issues and the Omicron variant.

The IHS Markit Taiwan PMI fell to an 18-month low at 54.3, from 55.1 in January.

"While supply chain disruption remained a key factor constraining growth, there were also reports of relatively high inventories at clients having weighed on production and sales," said Annabel Fiddes, economics associate director at IHS Markit.