Singapore factory activity contracts to 2-year low

SINGAPORE — The manufacturing sector ended 2014 on a weak note as factories turned in their worst performance in almost two years due mainly to a sharp decline in new orders, in a sign that erratic demand could continue to weigh on Singapore’s trade-reliant economy this year.

The Purchasing Managers’ Index (PMI) — which measures the activity and sentiment of manufacturers — contracted for the first time in three months to 49.6 last month from 51.8 in November, data by the Singapore Institute of Purchasing and Materials Management (SIPMM) showed. Last month’s reading also fell short of the 51 forecast by a Bloomberg poll and was the lowest since February 2013 (49.4).

A reading above 50 indicates expansion, while one below the benchmark line points to contraction.

The gloomy report comes hard on the heels of data last week that showed the Republic’s economy slowed more than expected in the fourth quarter as the manufacturing sector contracted.

Economists expect overall manufacturing to remain fragile this year, particularly in the first half. “2015 will be starting off on a soft note and the year-on-year contraction in the fourth quarter of 2014 may well drag into first quarter of this year given the high base last year,” said Ms Selena Ling, head of treasury research and strategy at OCBC Bank.

Last month’s bleak PMI is in line with similar sluggish activity within Asia’s factories, as manufacturers in China, Australia, Taiwan and Indonesia struggled with weak demand, both at home and abroad.

In Singapore, the manufacturing sector was hit hardest by a first-time contraction in new orders and a slower growth in new export orders, the SIPMM said. Across the sub-indices, production output, imports, input prices and employment all reverted to contraction.

“The sharp plunge in the orders index (down by 3.7 points) was the biggest decline since the 2008 to 2009 recession, exceeded only by the 5.2 points plunge in September 2009,” said CIMB economist Song Seng Wun.

He also noted that backlog orders were at their lowest in one year, while the inventory reading was at its lowest since November 2011.

“While customers could be cautious about demand in the coming months, they could also be watching the rout in international energy prices … (Hence they) are delaying bookings and depleting inventories in anticipation that raw-material costs will follow suit, especially for those in the chemical manufacturing industries,” Mr Song said.

On a more positive note, the key electronics cluster remained in expansionary territory for the 23rd consecutive month, although it slipped marginally by 0.1 point from November’s 50.6 points. “The Christmas seasonal effect, which contributed to the orders, dissipated in November and subsequently also in December,” explained DBS economist Irvin Seah, adding that he expects the electronics sector to post a marginal rise this month due to preparations for the Chinese New Year in February.