SINGAPORE (July 3): Factory output around the world is seeing some improvement as lockdowns and movement control restrictions are eased. And Singapore is no exception.
Data released by the Singapore Institute of Purchasing and Materials Management (SPIMM) on Friday shows the republic’s Purchasing Manager’s Index (PMI) came in at 48.0 for June.
A key drag came from the electronics PMI which came in at 47.6.
The index is a key barometer indicating a nation’s manufacturing activity. A reading above 50 indicates an expansion in output, while those below 50 point to industry shrinkage.
June’s decline marks the index’s fifth straight month of contraction in the overall manufacturing sector. Still, it is an easing from the 46.8 logged in May and the 44.7 recorded in April – the lowest level since November 2008, during the Global Financial Crisis.
"The June easing of Singapore's circuit breaker measures in two phases has enabled more factory operations but weak global demand has held back growth in the manufacturing sectors," said Ms Sophia Poh, vice-president of industry engagement and development at SIPMM.
As such, new orders, new exports, factory output, employment and supplier deliveries, were among the PMI sub-indices that recorded improvements.
Even so, Poh notes that “local manufacturers are concerned about the declining global demand arising from the pandemic controls and trade disputes of the major economies”.
This follows slower contractions recorded in the indices of imports, input prices and order backlog.
Touching on the data, DBS Bank’s senior economist Irvin Seah says the manufacturing sector brings a ray of opportunity to boost Singapore’s ailing economy. He expects it to remain an outperformer this year, despite the challenging outllok.
“That said, it will not be a smooth ride. The recovery will be uneven and not all manufacturing clusters will do well,” he mused.
A separate PMI reading by marketing consultancy IHS Markit, shows a 27.1 point rebound in output to 43.2 in June.
United Overseas Bank (UOB) economist Barnabas Gan notes that “the uptick at the introduction of Phase Two could only partially offset the lacklustre economic activities elsewhere”.
Referencing the readings by SPIMM and IHS Markit, he notes that a sustained weak global demand landscape persists.
“Collectively, the contraction seen in both the IHS Markit and SIPMM PMIs for May 2020 suggests further headwinds against Singapore’s manufacturing environment,” observes Gan.
“Key manufacturing sectors, save for biomedical manufacturing, could remain in the doldrums for the second half of the year COVID-19 wears on,” he adds.
Breaking this down, he points out that the segment accounts for less than 20% of total industrial production. Meanwhile, pharmaceutical exports – derived from biomedical manufacturing – only accounted for 9.9% of total non-oil domestic exports in 2019.
“This suggests that any exacerbation of the Covid-19 pandemic will prove to be more detrimental than beneficial for Singapore’s manufacturing environment,” stresses Gan.
Echoing these sentiments, Seah says, "though we expect the PMI to recover to above 50 in the coming months, the upside will be curtailed by the subdued global economic conditions”.
