Singapore's June PMI remains buoyant, but signs of inflation loom

SINGAPORE'S manufacturing sentiment remained buoyant in June, but economists are picking up small signs of rising price pressures in the months ahead.

The purchasing managers' index (PMI) in June rose 0.1 point from the previous month to 50.8, marking the 12th month of expansion, said the Singapore Institute of Purchasing & Materials Management (SIPMM) on Friday.

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

Similarly, PMI for the electronics sector posted an increase to 50.6 in June, up 0.2 point from the previous month. This is the sector's 11th month of growth.

For both indices, the increase was attributed to faster expansion rates in the key indices of new orders, new exports, factory output, inventory and employment, SIPMM said.

"The expansion in June's PMI reading continues to paint a robust manufacturing backdrop, which had underpinned Singapore's economic resilience since the onset of the Covid-19 pandemic in 2020," said UOB economist Barnabas Gan.

At the same time, economists are picking up hints of inflationary pressures in the near term from the rising input prices index, which rose 0.1 point to 51.1 in June.

"Because of the supply side constraint, prices are actually also going up, and this will eventually be passed on to consumers," said DBS senior economist Irvin Seah.

Concurring, Mr Gan said a portion of higher input prices is likely to spill over to consumer prices, which means Singapore's inflation could pick up further in June.

He also noted that headline inflation in May rose 2.4 per cent year on year, marking the steepest pace of increase since November 2013.

OCBC chief economist Selena Ling said rising raw material and input prices, as well as further Covid-19 curbs meant to combat the more virulent delta strain, have contributed to a pullback in many regional manufacturing PMI in June.

"Singapore may not be immune to these supply chain disruptions and input price pressures as well going ahead," said Ms Ling.

The aggregate PMI for emerging Asian economies fell in June for the third straight month to 50.5 due to a combination of supply bottlenecks and surging Covid-19 cases weighing on the region's manufacturing outlook, according to Barclays economists.

"This suggests momentum in manufacturing activity peaked and will likely moderate. That said, we expect North Asia to fare relatively better than Asean economies," said the Barclays team.

Still, economists remain bullish about prospects for Singapore's manufacturing sector, which saw little impact from stricter Covid-19 measures during Phase 2 (Heightened Alert), which ended June 14.

"The restrictions directly affect the domestic-oriented services cluster and doesn't really impact the manufacturing sector at all," said Mr Seah, adding that Singapore's manufacturing sector caters to external demand.

The manufacturing sector grew a stellar 7.3 per cent in last year, even as the Republic faced its worst recession since independence, and economists believe it is likely to continue to be a key driver of growth this year.

Mr Gan believes the sector will expand by 8 per cent in 2021, while Mr Seah has upgraded his growth forecast to between 8 and 9 per cent, owing to the strong growth momentum.

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