POOR purchasing managers' indices (PMIs) across Asia on Monday pointed to weak regional manufacturing activity in April, and Singapore's was no exception. Its PMI - a barometer of industrial activity - fell to a more than two year low of 49.4, indicating a fifth consecutive month of contraction.
Declines in new orders - both locally and from abroad - were key reasons for the decline, said the Singapore Institute of Purchasing & Materials Management (SIPMM), which compiles the monthly index by polling purchasing managers at more than 150 industrial firms.
Its survey found that production output sank back into contraction while inventory, stocks of finished goods and employment continued to fall. This pulled April's PMI further below the 50-point mark dividing growth from contraction than March's reading of 49.6 had been.
The slew of regional PMIs released on Monday told a similar story of a loss of manufacturing momentum across Asia. China's HSBC-Markit PMI signalled a deeper manufacturing contraction with a one-year low reading of 48.9, missing analysts' forecasts. The official PMI, which is said to capture larger firms' performance, also fell to 50.1.
South Korea's PMI pointed to a deeper contraction too, while Taiwan fell into contraction from an expansionary reading in March. Even India's PMI, which kept above the 50-mark, had slipped from March.
Barclays economist Leong Wai Ho said that while "very disappointing and slightly disconcerting", the synchronised downturn across the region probably reflects the softening of new orders in the US ISM manufacturing index in March. That picked up in April, so a bounce could be reflected in Singapore's May PMI, he said.
Also good news for the Singapore economy, which remains more closely tied to final demand from developed markets, was that the eurozone's manufacturing PMI continued to point to expansion with a reading of 52, though this too had slipped from March's 52.2.
But Singapore's manufacturing sector had a rough first quarter, shrinking 3.4 per cent year-on-year, according to official advance estimates. And Monday's PMI readings suggest that the second quarter has gotten off to a weak start too.
Though the Economic Development Board (EDB)'s quarterly business expectations survey, released last week, found that local manufacturers have turned more optimistic about business prospects for the next six months, the weaker PMI could temper some of that optimism.
"Singapore's manufacturing sentiments remained very mixed for now, suggesting a convincing recovery is not on the horizon yet," said OCBC economist Selena Ling. She expects only "a very modest seasonal pickup" in business activity from Q1 to Q2. The transport engineering cluster - in particular its marine & offshore engineering segment - as well as the chemicals and general manufacturing clusters are likely to remain weak in the coming months, she said.
What lies ahead for the key electronics sector though, is less clear. SIPMM's electronics PMI sank back into contraction territory with a reading of 49.1, after March's reading of 50.1. For Ms Ling, this confirmed her earlier hunch that "the brief March pop above 50 was unsustainable, and we're still stuck in this one-step forward, one-step back pattern".
Part of this halting electronics recovery could be due to the effects of ongoing consolidation and restructuring in the global IT industry which stepped up last year, as flagged by the Monetary Authority of Singapore in its recent Macroeconomic Review.
"These developments could lead to manpower and cost rationalisation across the IT firms' operations around the world as they seek to reap cost efficiencies from economies of scale. Singapore, being a key node in the regional IT supply chain, is likely to be affected by these corporate realignments," the report said.
Yet, it was the electronics manufacturers that were especially upbeat about improvements in business conditions, when polled by EDB. 21 per cent of semiconductor producers expected brighter prospects.
Mizuho Bank economist Vishnu Varathan noted that while the US SEMI book-to-bill ratio - a key gauge of shipments and orders of North American semiconductor makers - remains soft, they are not grim. Bookings, which indicate pipeline demand, are picking up, he said.
He also thinks that softer oil prices may boost discretionary demand, in favour of a modest recovery in electronics output. This is especially in the context of fresh policy stimulus, such as China's recent cut of banks' reserve requirement ratios.
Indeed, China's poor PMI on Monday reinforced expectations that its policymakers will step up stimulus to boost domestic demand and growth.
Mr Leong said: "All in, the trend of fits and starts reflect the reality that the world is going through a patchy recovery of modest strength. But there is no need for undue bearishness yet, the trend is more likely to be up than down."
This article was first published on May 5, 2015.
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