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S’pore factory activity falls for 11th straight month

SINGAPORE — Factory activity in Singapore contracted for the 11th straight month in May, but the pace of the fall stagnated as non-electronic industries offset the shrinking contribution from electronics.

Bloomberg file photo

Bloomberg file photo

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SINGAPORE — Factory activity in Singapore contracted for the 11th straight month in May, but the pace of the fall stagnated as non-electronic industries offset the shrinking contribution from electronics.

The Purchasing Managers’ Index (PMI) last month was unchanged from April at 49.8, but stayed below the 50-point threshold that separates expansion from contraction, said the Singapore Institute of Purchasing and Materials Management (SIPMM) yesterday.

The unchanged reading is due to mixed indicator trends, with marginal declines in new orders and new exports offset by a slight increase in factory output. The production index posted an expansion for the first time after 10 months of contraction.

The near-term outlook for the manufacturing sector is likely to remain soft, said economists.

“On balance, it is likely that the stabilisation in the overall manufacturing PMI is due to the non-electronics industries, possibly the biomedical/pharmaceuticals cluster, and the near-term outlook for the manufacturing sector will likely remain soft going into third quarter of this year. We had pencilled in a 2.1 per cent year-on-year contraction in manufacturing growth in the second quarter,” said Ms Selena Ling, head of treasury research and strategy at OCBC Bank.

The current conditions of the manufacturing sector in Singapore track the overall bigger picture for industry across Asia.

The private sector Caixin/Markit Chinese manufacturing PMI, which focuses on small- and medium-sized firms, fell to 49.2 last month from 49.4 in April. The official Chinese PMI, which mostly covers larger state-owned manufacturers, was unchanged from April, at 50.1 points.

Regional PMIs continued to show a mixed performance. Last month, the PMI for Indonesia, Vietnam and South Korea continued in expansionary mode. Meanwhile, Malaysia and Taiwan’s PMI continued to contract.

“Little sunshine this spring,” said Mr Frederic Neumann, HSBC Bank’s co-head of Asian economics research. “Manufacturing is stuck. Globally. China looks to have cooled again last month, Japan is still in deep-freeze. Things feel barely warmer in the West, though the Germans seem to be heading for the beach regardless. Judging from new orders, the summer isn’t going to prove much better. Exports, in particular, look weak. No wonder, then, that most of Asia is keeping its head barely above the waterline. Except Vietnam, which continues to make a splash. Fortunately, outside of China, employment is steady. Yet, altogether, little buffer. Better bring an umbrella.”

Last month, the Republic’s key electronics sub-index shrank for the 11th straight month, down 0.4 point from a month earlier to 49.1 points in May. The drop in the latest reading was attributed to lower new orders and new exports, a slower factory output, and declining employment. All sub-indicators recorded declines in readings, except for electronics finished goods.

In the electronics sector, finished goods marked their 11th month of expansion while employment contracted for the 13th month, indicating that “the electronic manufacturers are not clearing their finished goods fast enough, thereby creating a situation of stock overhang, and thus hampering employment”, noted SIPMM.

Ms Ling said: “Demand conditions have likely softened and electronics manufacturers have not been able to clear their stock and contributed to an inventory overhang. The North American semiconductor book-to-bill ratio reflects a similar picture of softening in April to 1.10x from 1.15x in March. As such, the domestic electronics industry is likely to see an overhang in the short-term.”

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