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Will leading economic indicators continue to soar?

On this first business day of the month, the most important leading economic indicator — the Purchasing Managers Index (PMI) — for March 2017 will be published. The PMI measures month-on-month manufacturing activity and orders. Levels of 50 and above reflect increasing manufacturing activity and signal a stronger economy.

On this first business day of the month, the most important leading economic indicator — the Purchasing Managers Index (PMI) — for March 2017 will be published. The PMI measures month-on-month manufacturing activity and orders. Levels of 50 and above reflect increasing manufacturing activity and signal a stronger economy.

Across the world, country PMIs have been hitting highs not witnessed for many years. This is despite the fact that more economies are becoming increasingly service-orientated.

Manufacturing activity tends to be the most reactive to changes in overall sales and inventories. Therefore, global markets are always monitoring the indications PMIs give at the start of each month.

In Singapore, even though the PMI level has been relatively subdued compared with other countries, it has also climbed in recent months, to the strongest levels in more than two years. With the PMI showing 50.9 in February, we would have to see a reading of above 51 to be assured of manufacturing growth.

This week, we will also see the release of the first quarter’s Property Price Index by the Urban Redevelopment Authority. Despite the Government’s easing of some of the stamp duty measures, the market consensus is that more time and stronger economic growth are needed before we see significant improvement in property prices.

In addition, the global reflation theme of better economic growth and normalisation has been good for global assets such as stocks and commodities. Improving growth and global asset prices usually correlate to property market price gains.

However, while the Singapore stock market has been quite buoyant in line with global reflation, we believe it is too soon to expect improvements in Singapore’s property market, and we expect modest declines of about 0.5 per cent in property prices.

ABOUT THE AUTHOR: Tony Raza is senior director, Multi-Asset Strategy, UOB Asset Management.

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