Singapore’s manufacturing contained in positive terrain albeit edging down for the first time in two years in the second month of 2022, no thanks to seasonal factors and escalating tensions between Ukraine and Russia.
Data released by the Singapore Institute of Purchasing and Materials Management (SIPMM) showed that the republic’s Purchasing Managers’ Index (PMI) came in at 50.2 in February, down 0.4 points from the previous month’s 50.6 reading.
This marks the biggest drop in the PMI reading since the 0.7 drop to 44.7 in April 2020, following the lockdowns imposed globally to curb the spread of the coronavirus.
Meanwhile, the electronics PMI – a separate metric – dipped by 0.3 points to 50.5.
The PMI is a key barometer indicating a nation’s manufacturing activity. A number above 50 indicates an expansion in output, while that below 50 points to an industry shrinkage.
Both the overall and electronics PMI readings edged down due to slower growth in the indices of new orders, new exports, factory output as well as employment, in the case of the overall PMI.
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Selena Ling, chief economist at OCBC Bank had “somewhat expected” the moderation in the readings of both metrics given the slowdown from Lunar New Year season as well as the headwinds brought on by the Russia-Ukraine conflict.
For reference, SIPMM’s PMI survey – which is deduced with reference to survey responses made by industry personnel – was conducted between Feb 15 and 25. Russia’s invasion of Ukraine had been the day after the cut-off date, on Feb 26.
UOB economist Barnabas Gan quips that the expansions in the overall and electronics PMI suggest that Singapore’s manufacturing sector and exports continued to buoyant despite the lull during the Lunar New Year.
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However, Ling notes that the electronics PMI could see slower growth going forward, following a slide in the output for the industry to 50 in February.
"The driver for this could be a combination of the ongoing chip shortage now potentially exacerbated by the current Russia-Ukraine conflict which could impact Ukraine's neon exports," she explains.
Neon is an integral gas used in lasers to etch hyperfine circuit patterns onto silicon wafers, adds Ling. To make matters worse, a company in Odessa - a city in southern Ukraine which is now under attack by Russian forces - supplies 65% of the world's neon.
Against this backdrop, Ling foresees greater risk to Singapore attaining a growth rate of 3% to 5% this year.
Meanwhile, Gan believes that the manufacturing sector will continue to be a key economic pillar for Singapore. He is expecting the sector to grow by 4% on average this year, amid expectations of “buoyant global trade activity”.
Still, he is also cognisant of near-term inflation risks on the back of possible supply disruptions “especially given the geopolitical noise in the backdrop amid higher oil prices”.
Elsewhere in Asia, China’s official manufacturing rose to 51.2 in February, up from 50.1 in the month before.
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Similarly, the Caixin PMI – which captures data from smaller, private manufacturers – expanded to 50.4, from 49.1 in January.
In this time, IHS Markit’s Asean PMI inched down to 52.5 in February, from 52.7 in the month before.
While manufacturers are seemingly upbeat about the outlook for output, sentiment has been at a 6-month low due to cost pressures, supply issues and the Omicron variant, notes Lewis Cooper, an economist at IHS Markit.
However, economists from Barclays caution that this could be a “false dawn” given that the surveys – which were mostly conducted between Feb 10 and 18 – are unlikely to have captured the impact of the ongoing Russia-Ukraine conflict.
"While the region's direct exposure to the conflict in Eastern Europe stems primarily from higher crude oil prices, the resultant increase in LNG (liquefied natural gas) costs, basic foods, fertiliser costs and also some specific metals and minerals could trigger a negative macro impact both through higher inflation and shocks to manufacturing, especially if the war is prolonged," the economists explain.
Cover image: file photo
