Economists see S'pore manufacturing activity picking up by Q2

SINGAPORE - Singapore's manufacturing sector, already morose from a seven-month contraction that mirrors a regional trend, is in for a few more moribund months ahead, say economists.

But as the global economy shifts, some of them are forecasting a pick-up in Singapore's manufacturing activity by the second quarter of this year.

Informing economists in their predictions was the release on Tuesday of January's purchasing managers' index (PMI) data by the Singapore Institute of Purchasing and Materials Management (SIPMM).

The headline index went down by 0.5 to reach 49.0 last month.

Figures above 50 denote business conditions improving from the previous month, and those below 50, a worsening. January's figure made it the seventh straight month of contraction.

CIMB Private Banking economist Song Seng Wun said: "No consumer around the world seems to be in a hurry to replace his or her high-definition television set or smartphone, so there's a lot of manufacturing excess capacity to deal with. It will still be a tough period, at least for the first quarter."

OCBC economist Selena Ling said: "We've not seen new export orders for the sector for quite some time already, so we hope that this is a broad-based trough, and that it'll hit bottom over this quarter or the next."

DBS economist Irvin Seah put it more succinctly: "All key sub-indexes are pointing to more challenging times ahead for the manufacturing sector ... Get ready for a cold winter."

SIPMM attributed the low headline PMI to a decline in new orders, a drop in factory output and lower employment.

On top of that, new export orders have continued to contract since January last year, whereas stocks of finished goods have been accumulating since April last year.

Inventory for manufacture, however, expanded for the second consecutive month, with a faster rate of supplier deliveries, but economists cautioned that this is not enough of a sign of an improvement, as it might just be the result of factories producing more than usual before they shut down for the Chinese New Year.

There are signs pointing towards a better outlook for Singapore's manufacturing in the months ahead, however.

For one, the fact that the PMI has been contracting since last June means that it will hit its bottom soon.

Also, the recent release of similar January PMI data from China and the high-tech bellwethers of South Korea and Taiwan might underline a shifting change in global demand, which is key to Singapore's manufacturing: The manufacturing sectors in China and South Korea contracted, but that in Taiwan posted a second month of expansion.

This might mean that even though China's growth remains uncertain, signs of economic recovery in the United States might pull up demand.

The strengthening American dollar has a role to play in painting a rosier picture for Singapore's manufacturing too, as it would boost demand. Investments from the country will go up too, as data also released on Tuesday by the Economic Development Board indicated, said OCBC's Ms Ling.

She said: "Though the picture is like doomsday now, it's not just doom and gloom for Singapore's manufacturing. It's not a sunset industry - yet."

This article was first published on February 3, 2016.
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