Why Singapore must brace itself for a slippage in production demand

Even as manufacturing numbers were rosy.

According to DBS, PMIs were out last evening and they certainly live up to expectation. The overall manufacturing PMI came in stronger than the previous month, rising 0.6 point to 51.7 in June.

Electronics PMI eased 0.2 point to 51.2. Essentially, this latest set of PMI numbers highlights that the manufacturing sector is nicely on a firm recovery path.

Here's more from DBS:

This makes for stronger manufacturing as well as GDP growth in the second quarter, compared to the slump in 1Q13.

However, the global outlook still looks dicey. The US recovery remains mixed while Europe is still in recession. China is going through an internal consolidation, which could spill over to the rest of Asia.

Indeed, the PMIs from some of our key trading partners are already reflecting that. Plainly, we expect the PMI to ease gradually closer to the 50 level in the coming months.

In fact, there are some tell-tale signs within this set of PMIs on the above view. For example, the new orders and import indices have eased off, suggesting anticipated tapering off in demand ahead. Inventory levels appear to have peaked while the stocks of finished goods are rising, essentially pointing to slower production in the coming months.

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