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Factory activity contracts, marring recovery outlook

SINGAPORE — The uncertainties hovering over Singapore’s manufacturing sector have taken a turn for the worse, as factory activity contracted for the first time this year on fewer new orders.

SINGAPORE — The uncertainties hovering over Singapore’s manufacturing sector have taken a turn for the worse, as factory activity contracted for the first time this year on fewer new orders.

Economists expressed concern over the figures, though some noted that the Purchasing Managers’ Index (PMI) does not paint the full picture for the sector’s outlook. Last month’s overall PMI fell to 49.7 from July’s 51.5, dropping below the 50-point mark, which separates contraction and expansion, for the first time since last December, said the Singapore Institute of Purchasing and Materials Management (SIPMM) yesterday.

The figures came in below Bloomberg’s forecast for an overall reading of 51 and mark the biggest pullback since March 2011, said OCBC economist Selena Ling.

“The main contributing factors were the lower new orders, especially new export orders, as well as production output, which suggest the domestic manufacturing industry still faces significant headwinds,” she said.

“Across Asia, Indonesia was the only country recording PMI contraction in August, so this is a real knock to market confidence for Singapore’s manufacturing outlook for the next three to six months.”

Data from SIPMM showed the reading for new export orders fell into the contractionary zone for the first time since February last year, dropping to 49.8 last month from July’s 51.7. Readings for production and employment also dipped below 50 points last month to 49.6 and 48.6 respectively.

Last month’s disappointing figures come as the US is showing further signs of recovery, which is expected to benefit Singapore’s manufacturing economy.

Said UOB economist Francis Tan: “Notably, the US PMI improved strongly to 58 in August, but we didn’t see that trickle down to us, even though our manufacturing is closely linked to US demand. August’s contraction may be a one-off event but, if the softening persists, we may be looking at a disparity between external recovery and Singapore’s manufacturing performance.”

Meanwhile, the overall PMI reading for the electronics sector slid to 50.7 last month from July’s 52.4. New export orders and production for the sector also dropped by more than two points to 50.5 and 50.9 respectively.

The electronics sector — Singapore’s biggest manufacturing cluster — has been suffering from declining output and exports, amid concern that the nation’s ongoing economic restructuring is hurting its competitiveness.

“The supply-side squeeze on the economy remains a major concern for manufacturers, particularly in the electronics sector, and the impact is possibly widening, judging from August’s PMI,” said ANZ economist Daniel Wilson, although he also noted that PMI figures do not paint a complete picture of manufacturing.

“PMI is a soft data point that only tracks performance relative to last month — it’s difficult to gauge magnitude of recovery or decline. It also doesn’t capture pharmaceuticals, which has continued to expand, very well,” he said, referring to the 28 per cent output rise in the Economic Development Board’s July data. “So, while electronics manufacturing remains weak, pharmaceuticals may provide some offset in the coming months.”

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