Thursday, July 5, 2012

» June PMI holds steady, but electronics slips

Business Times: Wed, Jul 04

[SINGAPORE] Singapore's manufacturing sector may have bucked the global trend of receding purchasing managers' indices (PMIs) for a second month in June, but economists say factory activity may come under pressure in the next few months.

The barometer of industrial activity held steady last month with a reading of 50.4, the same as in May, keeping above the 50-point threshold separating growth from contraction.

This better-than-expected expansion - thanks to growth in new orders, production output and inventory - came despite the US Institute for Supply Management's index falling to its lowest level in June since July 2009.

Other Asian PMIs also point to an extended soft patch going into Q3, noted OCBC economist Selena Ling. China's and Japan's manufacturing PMIs fell to seven-month lows in June, while South Korea's and Taiwan's fell into contraction territory for the first time in five months.

While this may speak of a degree of resilience in Singapore's manufacturing, DBS economist Irvin Seah thinks it unlikely that factories here can continue to buck the global trend. "Singapore's manufacturing sector is ultimately driven by global demand," he said.

Indeed, global economic conditions continue to challenge Singapore's business operating environment, said Janice Ong, executive director of the Singapore Institute of Purchasing & Materials Management (SIPMM), which compiles the monthly index based on a survey of purchasing executives in more than 150 industrial companies.

The electronics sector's PMI fell from 50.8 in May to 50.4 in June, though the above-50 reading continued to indicate expansion.

Mr Seah noted that almost all the sub-indices which make up the electronics PMI now point to further weakness in electronics production going forward. "Unless new product launches are able to inject more impetus into global consumer demand, expect demand to turn increasingly more sluggish against the backdrop of existing fragile economic conditions," he said.

Ms Ong added that new electronics orders from abroad have fallen, and that many companies have implemented cost-cutting measures and shelved hiring plans for the time being too.

But Barclays economist Leong Wai Ho sees reason for optimism still. He thinks the pull-back in global PMIs last month was a "knee-jerk reaction" towards caution as producers worldwide turned less confident when the crisis in Europe flared up, reducing inventory levels as they waited to see if problems there could be resolved.

He expects purchasing activity to improve in July, given that the recent European Union summit outcome has averted some of the worst fears - that Europe might melt down and pull US consumer demand down with it.

Most recent data from the Economic Development Board showed that May's industrial output rose 1.8 per cent from April after adjusting for seasonal factors, and rose 6.6 per cent year-on-year.

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