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Factory activity shrinks for third month; rebound expected

SINGAPORE — Manufacturing activity in Singapore contracted last month for the third straight month as the electronics sector shrank for the first time in two years, but economists said factories should get a boost in the second quarter to the second half of the year from the United States recovery.

SINGAPORE — Manufacturing activity in Singapore contracted last month for the third straight month as the electronics sector shrank for the first time in two years, but economists said factories should get a boost in the second quarter to the second half of the year from the United States recovery.

The Purchasing Managers’ Index (PMI), which measures manufacturers’ activity and sentiment, dipped 0.2 point to 49.7 last month from January’s 49.9. This is below the 50-point mark that separates contraction from expansion, the Singapore Institute of Purchasing and Materials Management said yesterday. The contraction was largely due to the further drop in overall new orders, while the sub-indices for new export orders and production also reverted to contraction.

“The results for February are not good. This is a reflection of excess supply in North Asia, which affects component suppliers like us in South-east Asia,” said Mr Leong Wai Ho, senior regional economist at Barclays bank.

The electronics index fell into contractionary territory for the first time after 24 months of expansion, shedding 0.7 point from the previous month to 49.8 points in February, due to a moderation in new orders partly because of the Chinese New Year holidays.

“Both the overall manufacturing and electronics sectors saw lower new orders, new export orders, production and order backlogs, pointing to softer external demand conditions in general. While there could be some seasonal effects due to the timing of the Chinese New Year holidays, the other global leading indicators are also very mixed,” said Ms Selena Ling, treasury research and strategy head at OCBC Bank. She noted that manufacturing PMI readings in the region offered conflicting cues: Mixed for China, higher for Taiwan and Vietnam and flat for South Korea.

Despite the third straight month of sub-50 PMI readings for the manufacturing sector — which contributes to about a fifth of Singapore’s economy — economists are positive about the coming months, saying that a revival is in the offing.

“The good news is that the excess supply in North Asia is diminishing and we will expect a revival in purchasing activity and industrial production by the second quarter. We will see more handset launches in the second quarter and demand will take up from there,” said Mr Leong.

UOB economist Francis Tan said: “The recovery in the US is good news for the manufacturing sector in Singapore. We should not be excessively worried as the US will provide some kick probably in the second half of the year. There will be a stronger uptake. The low base effect from last year will also help push the figures up as well.”

“Also ... the Government’s announcements in the Budget will help companies to scale up, innovate and internationalise, which in turn will provide more optimism to the industries in the long run,” he added.

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