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Factory activity shrinks for third straight month

SINGAPORE — Manufacturing activity in Singapore shrank for the third consecutive month in September, with the Purchasing Managers’ Index (PMI) at its lowest since December 2012, raising the likelihood of a technical recession for the third quarter and adding to expectations of monetary easing by the central bank at its meeting later this month.

Employees work at a manufacturing facility in Singapore. Bloomberg file photo

Employees work at a manufacturing facility in Singapore. Bloomberg file photo

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SINGAPORE — Manufacturing activity in Singapore shrank for the third consecutive month in September, with the Purchasing Managers’ Index (PMI) at its lowest since December 2012, raising the likelihood of a technical recession for the third quarter and adding to expectations of monetary easing by the central bank at its meeting later this month.

The PMI fell to 48.6 points last month, declining from 49.3 in August due to a further contraction in new orders, new export orders and production output, the Singapore Institute of Purchasing and Materials Management said today (Oct 1). A score above 50 indicates expansion, while a reading below that reflects contraction.

“The decline in September wraps up a poor third quarter. Overall, the environment in manufacturing has declined further … The drag came mainly from the Tuas area, where we saw weakness coming from shipbuilders, while the chemicals sector saw a step-down in new orders,” said Mr Song Seng Wun, economist at CIMB Private Banking.

Mr Francis Tan, economist at UOB, said: “The manufacturing sector is in a short-term cyclical downturn. The readings last month tell of the same ongoing pessimism manufacturers have since a few months back. The bad news from previous economic indicators and regional numbers probably affected the manufacturers and increased their pessimism.”

The soft Singapore PMI figure is in line with weak PMI readings in the region, with factory activity in China, South Korea, Taiwan, Indonesia and Malaysia in contractionary mode.

Mr Tan said that following the recent slew of poor data, expectations that the Monetary Authority of Singapore will ease policy this month have risen.

“This is so as the impact on the manufacturers not doing that well would trickle down … as businesses may end up cutting costs such as labour costs, which would then hurt the domestic labour market and that is a cause to worry for the policy makers,” he said.

“The risk for a technical recession is also increasing. As last month was the final month of the third quarter, the PMI reading may point to weaker industrial production data for September.”

A technical recession is defined by two consecutive quarter-on-quarter contractions. On a quarter-on-quarter seasonally adjusted annualised basis, the Singapore economy contracted by 4 per cent in the three months through June, a reversal from the 4.1 per cent growth in the previous quarter.

However, Mr Song said that the services sector may offer a silver lining. “There is still hope as at least we see growth in services, which may help offset the slump in manufacturing,” he said.

That would be little comfort to manufacturers. “Downward pressure is seen for the fourth quarter ... Headwinds still remain,” Mr Song said. “Unless we see a sustained broad-based recovery or pickup in external demand, particularly from developed markets such as the United States and Europe, manufacturers may continue to face challenges.”

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