SINGAPORE (May 5): Lockdowns and movement control orders imposed globally to contain the spread of the novel coronavirus has been weighing on factory output around the world. And Singapore is no exception.
Data released by the Singapore Institute of Purchasing and Materials Management (SIPMM) on Monday shows the republic’s Purchasing Manager’s Index (PMI) came in at 44.7 for April. This comes amid lower production capacity and supply chain responsiveness as well as order book cancellations in the wake of the circuit breaker measures which kicked in at the start of the month, SPIMM explains.
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.
April’s decline marks the index’s third straight month of contraction and is the lowest reading logged since the height of the Global Financial Crisis (GFC) in November 2008.
Specifically, the decline came from a dip in the electronics PMI by 1.3 points to 42.8, compared to the 44.1 logged in the previous month. At this level, the index is the lowest it has been at since its fall to 41.8 in December 2008.
Touching on the data, DBS Bank’s senior economist Irvin Seah said he was not surprised by the slide, given that March’s readings had hit its lowest level since February 2009. In fact, the “readings were expected to be weaker due to the circuit breaker measures which naturally would affect manufacturing companies,” he muses.
Indeed, the circuit breaker measures requiring the stoppage of non-essential activities brought a broad-based contraction in April, with inventory, employment, finished goods, input prices and order backlog falling in the red the SPIMM reflects.
However, these cracks had already appeared before the circuit breaker had kicked in. Says Sophia Poh, vice president of industry engagement and development at SPIMM, “anecdotal evidence suggests that many manufacturers were grappling with order cancellations resulting from the global containment measures of the Covid-19 pandemic”.
The imposition of the circuit breaker measures here merely weakened the supply chain operating environment, she adds.
Indeed, a recent survey commissioned by Singapore’s Economic Development Boards (EDB) found that 60% of manufacturers here expect business conditions to worsen in the next six months amid softer external demand and disruptions to global supply chains.
Even so, OCBC Bank’s chief economist Selena Ling points out that Singapore’s PMI declines is “more muted” than the plunges seen elsewhere such as Malaysia where the reading fell to 31.3 from 48.4 before, or Vietnam which fell to 32.7 from 41.9.
For now, economists caution that lower input prices – following the declines in inflation levels as well as a softer labour market outlook provide a gloomy prognosis for manufacturing activity in the months ahead.
“The prognosis for Singapore’s industrial production remains dim at this juncture. It is highly likely that Singapore’s industrial production may contract into the second and third quarter of this year,” observes UOB economist Barnabas Gan.
“Moreover, Singapore is highly reliant on trade and further headwinds as seen in April’s PMI report may portend further softness in export growth over the same period”.
Ling chimes in saying that the resurrection of trade tensions between global superpowers US and China may further tip already disrupted global supply chains and trading patterns. Her comments follow US President Donald Trump’s recent threats to ‘punish’ China with tariffs for allegedly causing the outbreak of the coronavirus.
See: Trump threatens tariffs on China for alleged origin of Covid-19
To this end, Oxford Economics’ economist Thatchinamoorthy Krshnan expects PMI data to continue its decline in the coming months as global trade and manufacturing are likely to contract sharply in the months ahead.