S'pore factory activity showing signs of recovery

S'pore factory activity showing signs of recovery

IT HAS been a long time coming, but the manufacturing sector is finally showing signs of recovery.

A key indicator showed that activity increased last month - the first time it has done so this year.

The Purchasing Managers' Index (PMI), which shows how manufacturers are faring, rose to 50.2 last month after April's recording of 49.4. A reading under 50 shows contraction, while one above 50 indicates growth.

The PMI has been below 50 for five straight months, so May's improvement is being seized upon by experts as a possible sign of a long-awaited turnaround.

Economists said the upswing could be the start of better times ahead for the sector, even as uncertainties persist.

"The PMI rose by 0.8 point in May, which was the highest jump since September 2014," OCBC economist Selena Ling told The Straits Times yesterday.

"This is one of the first positive signs for the economy this year and may be a herald for better growth ahead, when we also consider similar improvements overseas."

China's PMI rose from 50.1 in April to 50.2 last month, while in the United States, it rose from 51.5 to 52.8 over the same period.

The US reported a revised 0.7 per cent economic decline in the first quarter, but the slowdown was mostly due to prolonged port strikes on the West Coast, noted Barclays senior economist Leong Wai Ho.

"As a result, its consumption had fallen, while Asian exporters such as South Korea and Singapore also put up some dismal manufacturing figures in the first quarter. I believe the US is finally putting the doldrums behind it, and that will bode well for our factories and exports," he added.

Mr Leong said Singapore's PMI last month offered a more positive and updated view than previous mixed numbers, including an 8.7 per cent dip in industrial production in April.

Factory activity last month was boosted by higher new orders and production, with both returning to expansionary territory.

The electronics PMI was 49.8 last month, an improvement from April's 49.1 and a sign that the embattled electronics sector may be clawing its way to growth.

Despite these latest figures, Ms Ling cautioned against being overly optimistic about growth prospects.

"I remain hopeful for manufacturing's modest improvement this year, but the same expectations might have caused some front-loading of activities in May," she said.

"It's unsure how sustainable the uptick is, until we have a few more months of PMI and industrial production reading. For now, we still expect second-quarter economic growth to hit a trough at around 1.4 per cent, before improving to push full-year growth to around 2.5 per cent."

Official first-quarter growth was revised up to 2.6 per cent year on year, higher than the advance estimate of 2.1 per cent. Full-year expansion will be between 2 per cent and 4 per cent, the Ministry of Trade and Industry said last week.

Mr Leong forecast full-year growth of around 2.8 per cent, warning that manufacturers will continue to be squeezed by economic restructuring and manpower constraints.

"It's not a utopia where the process will be painless, but I think we are making progress, and we should look past the short-term pains and try to retain the benefits of restructuring," he added.

whwong@sph.com.sg


This article was first published on June 3, 2015.
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