October marks the fourth straight month of expansion in Singapore’s manufacturing activity.
Data released by the Singapore Institute of Purchasing and Materials Management (SPIMM) on Nov 3 shows that the republic’s Purchasing Manager’s Index (PMI) edged up 0.2 points to hit 50.5 points.
SPIMM attributes this to an increase in new orders, export orders and factory output. This is “unsurprising since this is the lead-up to the busiest period ahead of the Christmas orders season,” says Selena Ling, who heads OCBC Bank’s treasury research and strategy.
A lift also came from the electronics PMI which grew a smidgen 0.1 points to reach 51.0 points in October. This is the highest the metric has been at in the past year.
The PMI index is a key barometer indicating a nation’s manufacturing activity. A reading above 50 indicates an expansion in output, while that below 50 points to an industry shrinkage.
“The latest PMI data is relatively more encouraging given further expansions in new orders, which had flipped to first-time expansion in September after 8 months of contraction,” notes United Overseas Bank (UOB) economist Barnabas Gan.
He says the latest numbers is an indication that an improved external demand was one of the key drivers that spurred manufacturing momentum.
OCBC’s Ling agrees saying this phenomenon has also driven up the PMI readings of other countries.
For instance, PMI readings for the US and the Eurozone hit a near two-year high in October, with the US’ manufacturing ISM metric logging 59.3 points while the Eurozone’s reading came in at 58.2.
Closer home in Asia, the manufacturing PMI readings of India (58.9) and Thailand (50.8) also improved in October, despite the surge in the number of Covid-19 infections, and in the case of the latter, local protests.
The higher readings in Singapore’s manufacturing and electronic PMIs coupled with the growth momentum in its non-oil domestic exports (NODX) signals that a recovery is taking place, while recent high-frequency data points toward a relatively better economic environment in 4Q20, notes Gan.
Things have been looking up for Singapore’s trade sector with NODX expanding by 5.9% year-on-year in September, thanks to strong electronics exports.
See: Singapore's NODX edges up by 5.9% thanks to strong electronic exports
Meanwhile, September’s employment index barely moved a needle with that for the manufacturing sector edging up by 0.4 points to 49.2 while the reading for the electronics sector was up by 0.2 points 49.8.
This marks the metric’s ninth month in the red and indicates that hiring sentiment has continued to stay soft, say Gan and OCBC’s Ling.
However, the improvement is an “affirmation that the manufacturing, especially the electronics, sector remains in the drivers’ seat for the Singapore economy and will likely outperform the services and construction sectors for 2020,” stresses Ling.
A concern she flags in whether Singapore’s manufacturing and electronics growth momentum “will sustain into 1Q2021, given that inventory gauges are falling (despite being in expansion territory) and stocks of finished goods are also rising, whilst input prices are also picking up indicating that costs are also increasing”.
Against this backdrop, “supplier deliveries gauge for both the manufacturing and electronics sectors are both improving, the order backlog index is mixed for the manufacturing and electronics,” she mulls.
This brings uncertainties from a possible resurgence of Covid-19 infections as well as a protracted election outcome which could weigh on consumer and business confidence, say Ling and Gan.
Still, Gan says that the introduction of Phase Three of Singapore’s reopening by end-2020 “will likely signal an important milestone in Singapore’s relative success in controlling COVID-19 within her shores”.
“Barring a delay of the introduction of Phase Three, further relaxation of social restrictions by the end of this year should continue to not only drive consumer optimism and domestic demand, but may also mean further improvement in Singapore’s external environment and manufacturing momentum,” he muses.
