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Singapore's factory activity continues growth trend for third month in September

Amala Balakrishner
Amala Balakrishner10/3/2020 4:9 PM GMT+08  • 3 min read
Singapore's factory activity continues growth trend for third month in September
Manufacturing activity grew at a faster pace in August than the previous two months.
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Singapore’s manufacturing activity remained in the green in September, growing faster than in the previous two months.

Data released by the Singapore Institute of Purchasing and Materials Management (SIPMM) on Oct 2 shows that the republic’s Purchasing Manager’s Index (PMI) edged up 0.2 points to hit 50.3 points.

SIPMM attributes last month’s growth to an increase in the number of new orders and a faster rate of growth in manufacturing exports.

A lift also came from the electronics PMI which grew 0.3 points to reach 50.9 points in September. 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 upbeat, considering first-time expansions in new orders in 8 months, as well as faster rates of expansions in new exports and factory output. The data continues to suggest a relatively rosier economic backdrop as compared to the first half of 2020,” observes United Overseas Bank (UOB) Bank economist Barnabas Gan.

"The expansions in manufacturing and electronic PMIs signal that a recovery is taking place, while recent high-frequency data points towards a relatively better economic environment in the second half," he adds.

The recent PMI numbers coupled with the growth momentum in Singapore’s non-oil domestic exports (NODX) indicates that the trough in the city state’s economic performance was likely in 2Q2020, notes Gan.

Things have been looking up for Singapore’s trade sector with NODX expanding by 7.7% year-on-year in August, widening from the previous month’s 5.9% growth.

See: Recovery in electronics exports pushes Singapore's NODX up by 7.7% in August

However, Gan cautions that the results of August’s employment index suggests that the weakness in Singapore’s labour market is likely to persist in the coming months. The metric contracted for the eighth straight month to log a reading of 48.8 in September.

He expects labour market conditions to further weaken into 2H2020, following the tapering off of the subsidies under the Jobs Support Scheme in 4Q2020. In this time, the wage support enjoyed by businesses at 75% for the first S$4,600 of gross monthly wages paid to Singaporean employees during the months April – May 2020 will be reduced to a range of between 0% and 50% in 1Q2021.

“Despite continuous weak employment readings, manufacturers are becoming more optimistic and in anticipation of the next reopening phase for all businesses, mulls Sophia Poh, SIPMM’s vice president for industry engagement and development.

However, Gan along with his Oversea-Chinese Banking Corporation (OCBC Bank) counterpart Selena Ling caution that uncertainty in the global economy may plague a recovery in Singapore’s PMI numbers.

“While manufacturers are becoming more upbeat in anticipation of the Phase 3 opening, it may be too early to break out the champagne, especially since the upcoming American (presidential) election may pose an event risk and US-China tensions persist," says Ling.

And while the uptick in orders and exports particularly in the electronics sector has been promising, she reckons the traditional rush of Christmas orders is likely to be more subdued due to the weak global economy.

"Inventory, input price and order backlog gauges are also slightly softer, suggesting that the recovery process may not be smooth sailing either," she said.

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