Singapore Purchasing Managers' Index picks up to 51.0 in July on rosy factory sentiment, but Delta variant hammers regional sector

SINGAPORE'S factory sector is at its most positive level in two and a half years, as a monthly sentiment gauge reflected faster growth in July.

The Purchasing Managers' Index (PMI) reading picked up to 51.0 points for the month, from 50.8 in June, the Singapore Institute of Purchasing and Materials Management (SIPMM) announced on Monday. This is the highest overall score since December 2018.

Meanwhile, the PMI for Singapore's linchpin electronics industry rose by 0.2 point to 50.8, for its 12th straight month of growth. Readings above 50 indicate an expansion, while those below 50 represent a contraction.

Headline PMI was buoyed by faster expansion in new orders, new exports, factory output, inventory, and employment, though the finished goods index shrank for a fourth month.

"Anecdotal evidence suggests that the supply shortages faced by electronics manufacturers appear to be easing," Sophia Poh, SIPMM vice-president of industry engagement and development, said in a statement.

Still, supplier deliveries grew at a slower pace: The reading ticked down to 50.1 points overall, from 50.2 in June, and electronics supplier deliveries slipped to 50.8, from 50.9 in June.

Chua Hak Bin, regional co-head of macro research at Maybank Kim Eng, remarked to The Business Times that the Delta variant has already triggered regional lockdowns and forced some factories in Malaysia, Thailand and Vietnam to close or cut capacity.

"Singapore's manufacturing supply chains may be disrupted because of the rising Covid cases and tightening lockdowns across Asean," he said.

And Selena Ling, chief economist at OCBC, noted that "input prices also continued to edge higher in July" - up from 51.1 to 51.3 overall, and from 51.8 to 52.0 for electronics.

The rise "may be a cause of concern given news of the ongoing global chip shortage and rising commodity prices, especially if manufacturers are unable to pass on the higher costs to end-consumers", she said.

UOB economist Barnabas Gan added that the rising input prices suggest "imported inflation will likely persist on the immediate horizon".

But, even with Ms Poh's remark that "local manufacturers remain concerned about the fluidity of economic restriction", Mr Gan said: "Despite the tighter social restriction measures, we see little negative impact on Singapore's manufacturing landscape."

Citing consistently positive PMI readings in the past year, Ms Ling added that a resilient factory sector "should continue to provide a key pillar of support for near-term growth". She expected manufacturing to grow by more than 10 per cent year on year in 2021.

Delta doldrums

Singapore's latest PMI strength was an outlier in the region, which has generally been buffeted by worsening Covid-19 outbreaks as vaccine roll-outs lag the rest of the world.

"Renewed lockdowns in the region are worsening the already tight supply conditions, with delivery times further lengthened," wrote Barclays analysts, while warning of the risk of supply disruptions and continued downward pressure on regional PMIs.

Granted, electronics powerhouse Taiwan led the pack with a pick-up in manufacturing growth, as the IHS Markit manufacturing PMI jumped from 57.6 in June to 59.7 in July.

But Annabel Fiddes, economics associate director at IHS Markit, noted that manufacturers face "considerable impact from ongoing supply-chain disruption" - such as surging costs and low shipping container availability - which limits production capacity and order turnaround.

Other major Asian economies saw month-on-month declines in their positive PMI readings, with the IHS Markit PMI for South Korea weakening from 53.9 in June to 53.0 in July.

China's official manufacturing PMI fell from 50.9 to 50.4, while the private Caixin PMI - which focuses on smaller and external-oriented manufacturers - eased from 51.3 to 50.3.

The picture was uglier in South-east Asia, where IHS Markit reported that "the Asean manufacturing sector saw a sharp deterioration in conditions during July".

The regional PMI reading fell further into negative territory, tumbling from 49.0 in June to a 13-month low of 44.6 in July.

Malaysia's manufacturing PMI inched up from 39.9 to 40.1, but remained contractionary. Similarly, the reading in Vietnam was still negative, despite picking up from 44.1 to 45.1. Meanwhile, Thailand's IHS Markit PMI softened from 49.5 to 48.7.

Priyanka Kishore, head of India and South-east Asia economics at Oxford Economics, wrote that "July PMIs continued to reflect weak domestic conditions in the coronavirus-hit economies", despite activity picking up in North-east Asia and India. "We continue to look for sequential improvement in Asia's growth in H2. However, slow vaccination progress and low Covid tolerance in many economies have led us to forecast more drawn-out recoveries."