Singapore PMI dips alongside weakening manufacturing sentiment in Asia

SINGAPORE'S electronics producers appear upbeat about prospects, with optimism at a seven-month high even as the manufacturing sentiment cooled a notch in August.

The purchasing managers' index (PMI) for the electronics sector rose 0.2 point to post an expansion of 51, marking the 13th month of growth, according to the Singapore Institute of Purchasing and Materials Management (SIPMM) on Thursday. This is the highest reading since January.

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

SIPMM attributed the latest reading to faster expansion rates for the key indices of new orders, new exports, factory output and employment.

DBS senior economist Irvin Seah said: "Global demand for electronics parts and components remained high due to strong investment into new technologies amid the Covid environment. Global semiconductor equipment billings and shipment of semiconductor chips continued to increase in robust pace."

However, OCBC chief economist Selena Ling believes the elecronics boom may subside as more workers return to the office and demand for electronic equipment upgrades moderate.

Overall manufacturing PMI dipped 0.1 point to a reading of 51. Still, this is its 14th month of expansion.

The slower momentum came as no surprise to economists, who point to the slower momentum in China and the rest of the region.

UOB economist Barnabas Gan said the decline is likely due to a "slightly softer" external environment, as seen from the slower expansion rates in new orders, new exports and factory output.

This was also evidenced by slower growth in both exports and non-oil domestic exports in July, he added.

Ms Ling added: "Moreover, there is anecdotal evidence of global supply chain disruptions which could be hampering the availability of key components, and the low base effects from last year's pandemic lockdowns are fading."

Both Mr Seah and and Ms Ling believe overall PMI could moderate further in the months ahead as new variants of Covid-19 could trigger a resurgence and hamper the lifting of restriction measures.

In China, official manufacturing PMI slipped from 50.4 in July to 50.1 in August, while its Caixin PMI slid to 49.2, down from 50.3.

Meanwhile, Taiwan's PMI reported by IHS Markit fell from 59.7 to 58.5, the second-lowest reading recorded since last November.

"Shortages fed through to another rapid increase in input costs and output charges, despite the rates of inflation easing since July, while backlogs of work rose at a near record pace. At the same time, firms scrambled to build up their inventories, with purchasing activity rising sharply, to help protect against future delays and any further price hikes," said Annabel Fiddes, economics associate director at IHS Markit.

South Korea's PMI likewise declined from 53 to 51.2, the softest rate of growth since October, according to IHS Markit.

For South-east Asia, IHS Markit's Asean PMI dwindled to 44.5, down from 44.6, the third straight month of deterioration. Lewis Cooper, IHS Markit economist, noted that contractions were recorded across each of the seven constituent nations for the first time since May 2020.

Priyanka Kishore, head of India and South-east Asia economics at Oxford Economics, said: "The weakening in the PMIs reflects the significant impact that Covid-19 outbreaks are having on activity and policy in most Asian economies. With vaccination programmes not sufficiently advanced to cope with the spread of the Delta variant, many governments in the region have re-imposed social distancing measures, leading us to downgrade 2021 GDP growth forecasts."

Barclays economists said PMIs in the region are likely to continue facing downward pressure after peaking in March, but North Asia is still likely to outperform Asean countries.