Singapore PMI resumes downward trend, slides deeper into contraction

SINGAPORE’S overall factory activity resumed its downward trajectory in December, deeper into contraction territory, after a surprise uptick in November.

The Purchasing Managers’ Index (PMI) dipped 0.1 point to 49.7 in December, data from the Singapore Institute of Purchasing and Materials Management (SIPMM) released on Tuesday (Jan 3) showed.

This is the fourth consecutive month of contraction in overall activity, after the PMI expanded for 26 straight months between July 2020 and August 2022. A reading below 50 indicates the manufacturing sector is declining, while a reading above 50 means growth.

The electronics sector slipped 0.3 point from the previous month to post a faster contraction at 48.9. This is the fifth consecutive contraction since August 2022, after two years of continuous expansion.

The latest readings “do not bode well” for the manufacturing sector, said Sophia Poh, vice-president of industry engagement and development at SIPMM, noting that slowing electronics demand and escalating cost pressure is weighing down the overall manufacturing sector.

Meanwhile, global uncertainties from geopolitical developments as well as the macroeconomic risks of high inflation and volatile energy prices continue unabated into the new year, she said.

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Alvin Liew, senior economist at UOB, said the resumption of the slide in overall and electronics PMIs further into contraction territory was unsurprising. “We expect further downside to the PMIs in the first three months of 2023, and the weakness to extend at least another quarter or even two,” he said.

“We project the US and European economies to enter a recession this year amid aggressive monetary policy tightening stance among these advanced economies. This will directly impact the manufacturing and external-oriented services sectors, which will be reflected by the continued slide in Singapore’s headline and electronics PMIs.”

The underperformance is in sync with global and regional manufacturing PMIs which have mostly softened further in December, pointed out Selena Ling, chief economist and head of treasury research and strategy at OCBC Bank.

“South Korea’s semiconductor output fell in November by 15 per cent year on year, the biggest drop since 2009, which is indicative of the fall-off from global tech demand,” she said.

Ling said she too expects the manufacturing sector to “remain lacklustre” in at least Q1 of this year. “What is less certain is whether the global tech sector has hit bottom yet, and when the timing of a potential rebound is,” she said.

China’s official manufacturing PMI fell to 47.0 from 48.0 in November, the lowest since Q1 2020 and trailing the market consensus of 47.8. Its Caixin PMI, derived from smaller private manufacturers, edged down to 49.0 in December from 49.4 in November.

In response to the official PMI figure, Bank of America analysts said in a report that while they had expected things to get worse before getting better, the rapid pace of reopening may indicate a deeper and more disruptive shock on the economy in the near term.

Across the causeway, the S&P Global Malaysia manufacturing PMI came in at 47.8 in December, slipping from 47.9 the previous month to mark a fourth consecutive softening of operating conditions. The latest moderation, though broadly in line with that seen in November, was the strongest since August 2021.