Continue reading this on our app for a better experience

Open in App
Home Capital Singapore economy

Singapore's manufacturing bucks five-month contraction to log expansion in June

Amala Balakrishner
Amala Balakrishner • 3 min read
Singapore's manufacturing bucks five-month contraction to log expansion in June
Singapore’s manufacturing activity made a surprise expansion in June after five straight months of contraction. 
Font Resizer
Share to Whatsapp
Share to Facebook
Share to LinkedIn
Scroll to top
Follow us on Facebook and join our Telegram channel for the latest updates.

Singapore’s manufacturing activity made a surprise expansion in June after five straight months of contraction.

Data released by the Singapore Institute of Purchasing and Materials Management (SPIMM) on August 3 shows the republic’s Purchasing Manager’s Index (PMI) rose 2.2 points in July to 50.2 – higher than the 48.6 median estimate logged by economists in a Bloomberg survey.

A key drag came from the electronics PMI which remained contractionary at 47.6 points. Still, this is a 1.6 point increase from the 46.2 points the segment logged in May.

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 industry shrinkage.

“The July expansion reading is a welcome respite for Singapore’s manufacturing [sector],” observes Sophia Poh, vice president of industry engagement and development at SPIMM.

Agreeing, United Overseas Bank (UOB) economist Barnabas Gan says the latest data comes from the “relatively rosier external environment and manufacturing momentum seen in July”.

This was seen in Singapore’ 16.1% year-on-year increase seen in Singapore’s non-oil domestic exports in June which was thanks to expansions in both electronic (+22.2% year-on-year) and non-electronic (+14.5% year-on-year) shipments, Gan details.

See: Non-oil domestic exports makes surprising rebound in June

However, a similar decline was not seen in June’s industrial output, which fell by 6.7% following volatility in the biomedical cluster. Excluding biomedicals, factory output surged 2.1%, Singapore’s Economic Development Board (EDB) announced on July 24. A further expansion was hindered by the Phase One measures between 2 and 17 June, which restricted operations at factory sites.

See: Singapore's factory output falls for the second consecutive month in June

Still, Gan calls the improvement in Singapore’s PMI “encouraging” given the risks of a second and third wave of Covid-19 infections here.

Local manufacturers meanwhile remain concerned about the growth outlook, “due to continued uncertainties from the pandemic controls and trade disputes of the major economies”.

Another concern comes from the contraction in the employment index which came in at 49.1, a contraction from May’s 49.4.

This “suggests that the improvement in manufacturers’ sentiments did not extend to greater hiring intentions yet and global supply disruptions had eased but not fully subsided,” observes Selena Ling, OCBC bank’s head of treasury and strategy.

Gan similar notes that the “labour market is expected to stay weak, despite the introduction of the Phase Two reopening on June 19”.

“We continue to expect that hiring sentiments may continue to stay soft amid a weak labour market outlook into 2H20,” he adds.

See: Total employment sinks deeper in June, following circuit breaker measures

Drawing reference to PMI data from other countries, Ling observes two distinct camps with China (52.8), Taiwan (50.6) and South Korea (46.9) showing improvements. Others like Indonesia (39.1), Thailand (43.5) and Japan (42.6) were deepening into the contractionary range.

“This suggests that while the manufacturing recovery is likely to sustain in the months ahead, the rest of Asia may lag behind China’s First-In-First-Out momentum,” says Ling.

“Given the long tail of the Covid-19 pandemic, the 2H20 recovery may also be bumpy and potentially run into some speedbumps ahead”.

Gan’s prognosis is that Singapore’s economy will remain soft in the six months between July and December.

He cites: the slowdown of global demand which could continue to discourage manufacturing momentum, uncertainty over the COVID-19 situation and (3) the risk of a spike in infection in Singapore’s key trading partners which may weigh on sentiment.

Loading next article...
The Edge Singapore
Download The Edge Singapore App
Google playApple store play
Keep updated
Follow our social media
© 2024 The Edge Publishing Pte Ltd. All rights reserved.