Singapore factories pick up steam, buck regional trend

A key indicator of factory activity here picked up pace last month, adding to signs that manufacturing is gathering steam in Singapore even as it falters elsewhere in the region.

Fuelled by a jump in new orders from domestic and overseas markets, the purchasing managers' index (PMI) expanded for the third straight month in May to hit a two-year high of 51.1.

This was up from 50.3 in April and well ahead of economists' expectations of a 50.5 result. Any reading above 50 signals growth in manufacturing, while one below 50 means a contraction.

"The latest PMI numbers further gel our expectations of the cyclical rebound in manufacturing," said UOB economist Francis Tan.

He said the positive figures follow other optimistic data in April, such as a 4.7 per cent rise in factory output levels from a year ago and an improvement in exports.

CIMB economist Song Seng Wun agreed that "a modest recovery may be under way" for the manufacturing sector, which makes up a fifth of the economy.

He said the rebound in the vital electronics segment also seems more stable, with the electronics PMI growing for the fourth straight month to hit 51.4 in May.

The overall PMI, an early barometer of the manufacturing sector's well-being, showed that actual production levels slipped last month, said the Singapore Institute of Purchasing and Materials Management, which publishes the monthly index.

But this was offset by growth in both factory inventories and employment, the institute added.

Imports and input prices also continued to climb last month while stocks of finished goods fell.

Coupled with the increase in orders, this suggests manufacturers are preparing to ramp up production, said HSBC's economist for India and ASEAN, Mr Leif Eskesen.

But he does not expect a "notable recovery" in manufacturing until towards the year end, when global trade is expected to be more stable.

One puzzle, however, is why Singapore's PMI bucked the trend of softening manufacturing data elsewhere in Asia, said JP Morgan economist Matt Hildebrandt.

India's PMI fell last month to its lowest level in four years on weak domestic demand, but remained above the watershed 50 level.

South Korea's PMI also eased last month but kept above 50, while the PMIs for Taiwan and Vietnam slipped into contraction territory.

In China, the official PMI improved and stayed above 50 last month, but another PMI compiled by HSBC fell to 49.2, worse than earlier estimated and indicating that the factory sector shrank. HSBC's PMI is viewed as a broader snapshot of the Chinese economy.

One possible reason for the discrepancy is that Singapore factories were restocking inventories, which remain lower than historical average, said Mr Hildebrandt.

Another explanation could be a divergence in production cycles for different electronic segments, he said. Singapore's factories focus on PCs and laptops, while South Korea and Taiwan specialise more in tablets and iPhones.

fiochan@sph.com.sg

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