Growth in Singapore's manufacturing activity eases in February, but economists expect sector to be in the 'driver's seat' in 1Q2021

Singapore’s manufacturing activity remained positive for the eighth consecutive month in February, although momentum appears to have tapered off slightly.

Data released by the Singapore Institute of Purchasing and Materials Management (SIPMM) shows a 0.2 point dip in the republic’s Purchasing Managers’ Index (PMI) to 50.5. 

This follows the 50.7 point expansion logged in the month before.

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.

SIPMM attributes the latest showing to lower expansion rates in the indices of new orders, new exports, factory output as well as a faster rate of supplier deliveries.

Meanwhile, the electronics PMI – a separate metric – had also dipped by 0.2 points to 50.8 in February.

This follows slower expansion rates in the indices of new orders, new exports, factory output and inventory, SIPMM notes.

Still, this marks the sector’s seventh consecutive month of expansion.

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To economists, the expansionary nature of the two metrics spells good news despite the slowdown in momentum.

UOB economist Barnabas Gan for one says that the moderation in February’s PMI could be due to seasonal factors such as the Chinese New Year holidays which may have affected manufacturing export and labour demand.

Even so, he says that the fact that the metrics remain expansionary, indicates that Singapore’s industrial production is likely to grow further. 

To prove his point, Gan points out that both import and export PMI readings have been hovering above 50 since 3Q2020 ended last September. This shows that Singapore’s external environment has continued to improve, he adds.

Agreeing, OCBC economist Selena Ling says that the pullback in the readings was “unsurprising” since China’s Caixin manufacturing PMI slipped more than expected from 51.5 in January to 50.9 in February.

This correspondingly triggered similar pullbacks in the PMI readings in India, Indonesia, Malaysia, Thailand and Myanmar, she notes.

"The moderation is likely attributable to the resurgent Covid-19 cases and tightening of social restriction measures across many parts of the global economy, but there is light at the end of the tunnel in the form of an acceleration in the global roll-out of vaccines," Ling elaborates.

Going forward, she expects both the manufacturing and electronics sectors to continue being “in the driver’s seat” for the Singapore economy in 1Q2021 ending in March. However, she cautions that the growth momentum could ease from that seen in 2H2020.

"We tip Singapore's 2021 industrial production growth forecast at 3.5% y-o-y, although the global chip shortage may herald more upside for manufacturing growth at this stage," mulls Ling.

"One silver lining is that the global chip shortage should continue to drive the electronics sector in the near-term, with North Asian trade data, especially semiconductor exports, already reflecting the lift from stronger orders,” she adds.

Meanwhile, Gan has pencilled a 3% y-o-y growth in industrial production.

Upside risks to this include a quicker-than-expected roll out of the Covid-19 vaccine while downside risks could come from uncertainties surrounding the pandemic and the recent rise in geopolitical tensions, he notes.