Singapore's electronics PMI up at 51.6 in March

[SINGAPORE] Singapore's electronics Purchasing Managers' Index (PMI) rose 0.4 to a reading of 51.6 last month - exactly in line with economists' expectations - fanning hopes that last month's broad-based gains will continue into Q2.

The overall PMI reading, however, fell short of private-sector forecasts, dipping 0.1 to 50.8 in March. Private-sector economists polled by Bloomberg had earlier forecast a reading of 51.1.

A reading above 50 denotes growth, while one under 50 points to a contraction in the manufacturing sector.

Giving his take on the March figure, CIMB economist Song Seng Wun said: "Overall PMI may have dipped but it's still above 50 and showing modest expansion. But I'm paying a bit more attention to the (electronics PMI), and keeping my fingers crossed - tech factories should start to be busier against the backdrop of improving global demand, especially coming from developed economies like the US."

Sub-indices for the electronics sector index seem to bear this out - growth was registered in new orders from domestic and overseas markets, and electronics production output and imports continued to expand.

Barclays economist Leong Wai Ho saw the pick-up in electronics PMI as a "particularly healthy development".

"It shows that electronics production is tied to the recovery in the global electronics cycle - as we approach the summer launch season for consumer electronics in Asia and also the greater willingness of US Fortune 500 companies to invest in IT this year," he said.

Still, Mizuho economist Vishnu Varathan noted that "the 14th successive expansion and decent gains in March do not override the fact that the (electronics) sector is starting from a very low base - a point that is glaringly evident in the industrial production numbers as well".

DBS economist Irvin Seah also wondered whether March's momentum can be sustained: "The key surprise this time around is that we've seen an uptick in electronics PMI, despite the fact that we've seen an easing off in the semi book-to-bill ratio, (and a) flattening out in global semiconductor sales growth. This has been a pleasant surprise, but I'm not sure how sustainable it is."

Meanwhile, the dip in overall PMI was attributed to lower new orders as well as lower levels of production output and inventory, said the Singapore Institute of Purchasing & Materials Management (SIPMM), which compiles the monthly index.

Economists such as Mr Leong were not too fazed by the slight retreat in overall PMI: "I am less concerned about the marginally lower overall PMI reading, given that the drop in purchasing activity was due to producers trying to run down inventories of finished goods. Generally, this means that production will start to pick up if the external recovery continues."

Still, Mr Varathan said: "The overall index treading water is perhaps encouraging, but is far from exhilarating . . . The upshot is that there is not much in the PMI report that we do not already know. That is, admittedly, Singapore's manufacturing is staging a gradual and for now shallow rebound, but that is a long way off a spectacular come-back story unfolding in the near-term."

OCBC economist Selena Ling noted that "the manufacturing PMI retracement is largely in step with the other Asian manufacturing cues seen yesterday, where a similar picture of slippage was seen for Taiwan (52.7 versus 54.7), Indonesia (50.1 versus 50.5), India (51.3 versus 52.5) and China (48.0 versus 48.1), with the exception of Vietnam (51.3 versus 51.0)".

Added HSBC's Frederic Neumann and Dinkar Pawan in a report titled What the latest PMIs mean for Asia: "With a few exceptions, PMIs in East and West, while still above the waterline, have eased back further. Surprisingly, in Asia, new export orders picked up. But that may prove temporary. We're heading into the second quarter with little wind in our sails."

With advance GDP estimates for the first quarter due for release early this month, economists from Bank of America Merrill Lynch, OCBC and DBS are forecasting year-on-year Q1 GDP growth of 5.1, 5.6, and 5.8 per cent respectively.