Singapore's PMI numbers get engulfed in a sea of red

Manufacturers are slapped hard with weak demand.

Overall demand is spiraling down hard and fast, and manufacturers can't seem to swallow the "hard truth." Both Aug5 PMI figures and the MAS’s Survey of Professional Forecasters are pointing to more downside risk to growth.

According to DBS, the headline PMI numbers fell deeper into the red. Overall manufacturing and electronics PMIs eased to 49.3 and 49.0 respectively. Indeed, judging from the recent outcome of the PMIs in key markets, such pessimism seems justified.

Here's more from DBS:

Latest PMIs for China are showing that its manufacturing sector is contracting, which has exacerbated the risk of a hard-landing in the economy.

Plainly, signs of weakness on the external front and correspondingly on Singapore’s manufacturing sector has already surfaced for a while. Previous month’s PMIs have already slipped into the red with a reading of 49.7, down from 50.4 in June. The electronics cluster was also back in the contraction mode at 49.5, after a brief and modest inventory restocking exercise, which lifted the index to 50.3 previously. Increase in inventory and stocks of finished goods indexes have been met by decline in all the production and new orders indexes.

Clearly, this is a typical case of earlier optimism by manufacturers now being weighed down by the “hard truth” of weak demand.

In addition, the MAS’s survey has further reinforced the view that the economy is decelerating amid the external headwinds. Consensus is now looking at 2.2% growth for the year. However, given the timing of the survey, most of the risk factors that emerged recently, probably have not been factored into the forecast. Specifically, a median forecast of 2.2% for the year essentially has not taken into account the possibility of a technical recession. 

With the likelihood that the economy could already be in a technical recession, risk is rising that full year growth could fall short of the official forecast range of 2.0-2.5%. Expect downward revision in growth expectation in the coming months. In this regards, we will also be reviewing our full year GDP growth forecast for the year in conjuncture with the release of our quarterly report next week.