SINGAPORE - Singapore's manufacturing sector continued to outperform its regional counterparts last month, expanding for the fifth consecutive month despite weaker showings across the rest of Asia.
But even though the Republic's purchasing managers' index (PMI) rose to a two-year high last month, economists point out that the pace of growth here has slowed, with the electronics sector posing some cause for concern.
Thanks to a further rise in new orders - both from home and abroad - Singapore's PMI reading rose slightly to 51.8 last month from 51.7 in June, inching further away from the 50-point threshold separating growth from contraction month on month.
The PMI figures came on Thursday from the Singapore Institute of Purchasing & Materials Management (SIPMM), which surveys purchasing executives in more than 150 companies to compile the index.
The city-state's improved performance last month continued to defy the regional trend of floundering factory activity. According to PMIs released by HSBC and Markit on Thursday, readings in China, South Korea, and Taiwan slumped further below the 50-point mark last month.
China posted an 11-month low reading of 47.7, down from 48.2 in June - signalling a deterioration of business conditions for the third consecutive month.
However, this figure - which covers more private sector SMEs - was contrary to the Chinese government's PMI reading (said to poll larger firms) of 50.3, marking a 0.2-point increase from June.
Taiwan fell further into contraction territory to 48.6 last month, while South Korea's PMI dropped a more drastic 2.2 points to 47.2.
But even as economists noted the "pleasant surprise" brought by the Singapore manufacturing sector's resilience, some warned that the PMI reading might have hit its peak last month.
"It's true that overall PMI went up and stayed over 50, but the pace of the increase has started to moderate," said DBS economist Irvin Seah, highlighting the marginal 0.1-point rise in July - meagre when compared to the 0.6 and 0.8-point increases in June and May respectively.
"I think it's going to get more and more difficult for the PMI number to grow and to continue to buck the regional trend, if the rest of Asia continues to perform weakly," noted Mr Seah.
Because the electronics sector's July PMI reading fell 0.9-point to 50.3, recent hopes for a steady electronics recovery may now be a little shaky.
The decline was led by new domestic and export orders, as well as inventories - down 2.5 points to 50.9 - although all three sub-indices' readings remained above the 50-point mark.
Said Barclays economist Joey Chew: "I have long held the view that electronics production needs to see some pause - or even pullback - as output growth has gotten ahead of export growth . . . July PMI suggests inventory adjustment is ongoing.
I think that the continued improvement in overall PMI, despite the fall in electronics PMI, suggests that biomedical and transport engineering are holding up."
Even as UOB economist Francis Tan acknowledged that electronics PMI's "climb has stalled", he said that he is "still optimistic" about industrial production. According to the Economic Development Board's numbers released last week, the electronics sector continued to show signs of improvement in June, with output growing 2.6 per cent year on year.
The sector owed its increased output to the computer peripherals and other electronic modules & computer segments, which expanded 30.9 per cent and 14.9 per cent respectively thanks to higher export demand. The semiconductors segment increased 2 per cent.
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