Factory activity shrinks at slower pace

Factory activity shrank for the ninth straight month last month but at a slower pace of decline, stoking hopes that manufacturing may finally be on the rebound.

The Purchasing Managers' Index (PMI) - an early indicator of manufacturing activity - was at 49.4 last month, up slightly from February's 48.5 reading, a low last seen in December 2012.

A reading below 50 indicates contraction.

"This is the strongest pick-up from February to March since 2013," said OCBC economist Selena Ling, noting that last month's improved reading joins a string of brighter PMI data from the United States, euro zone and China, as well as from Taiwan and South Korea - Singapore's peers in the value-added segment.

South Korea posted a March PMI of 49.5 after reaching a six-month low in February, data from Nikkei and Markit Economics showed last week. Taiwan's PMI hit 51.1, marking the sector's third expansion in the past four months.

Singapore's improved PMI came on the back of higher new orders, employment and factory output last month, though these indicators have remained in contractionary mode, said the Singapore Institute of Purchasing and Materials Management, which compiles the index.

The electronics sector posted a PMI reading of 49 last month, up slightly from 48.2 in February.

But employment in the electronics sector continued to contract for the 11th straight month, as most manufacturers struggled to maintain a lean and productive workforce in an uncertain global business environment, said the report.

Ms Ling said: "This March electronics print is the largest improvement from February to March since 2009, but remains below the 51.2 average seen in the previous three years, suggesting that the recovery is still at a nascent stage."

Similarly, the March headline PMI of 49.4 also falls short of the three-year average of 50.3, Ms Ling said.

Most factory bosses hesitated to say that the worst is over for their sector. Mr John Kong, managing director of building supplies firm M Metal, said: "I have been in business for a long time. This is the first time I don't see a clear turnaround.

"I have to wait till June to make another judgment call. The Finance Minister just delivered his (Budget) speech. Everyone says it's good, but we'll need a few months to see if it has substance. Hopefully by June, the information on the help extended to small and medium-sized enterprises is clearer."

marilee@sph.com.sg

This article was first published on April 5, 2016.
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