Singapore’s PMI back in expansion mode in September

SINGAPORE’S overall manufacturing sentiment headed back into positive territory for the first time in six months in September, suggesting that the manufacturing slump may have bottomed, and that the sector could stabilise in the coming months.

The purchasing managers’ index (PMI) edged up to 50.1 in September, a 0.2-point gain from August, data from the Singapore Institute of Purchasing and Materials Management (SIPMM) indicated on Tuesday (Oct 3).

A reading above 50 on the index indicates growth from the previous month, while one below 50 points to a contraction.

The linchpin electronics sector gained 0.3 point to 49.8 in September – staying in contraction territory for the 14th consecutive month. However, the sector shrank more slowly than in the month before.

SIPMM executive director Stephen Poh said: “The latest PMI readings indicate the resilience of the manufacturing sectors, despite several challenges affecting external demand as well as the continuing geopolitical risks of the global environment.”

SIPMM attributed September’s improved reading to a slower contraction in the indices of new orders and inventory, an expansion in new exports and employment as well as faster growth in factory output. In particular, employment levels in the manufacturing sector returned to expansion territory, after having contracted for the last seven months.

The electronics sector PMI improved on the back of a slower contraction in the key indices of new orders, new exports, factory output, inventory, and employment, SIPMM noted.

OCBC chief economist Selena Ling described the latest PMI reading as encouraging because it points to the broadening of the manufacturing sector’s growth drivers – and this is despite the electronics sector continuing to underperform.

She added that it was particularly notable that the order backlog indicator for the sector had picked up for four consecutive months, suggesting that global demand conditions are slowly, but gradually, stabilising.

“The improving manufacturing PMI trend over the past few months suggests to us that Singapore’s manufacturing slump has likely bottomed,” said DBS economist Chua Han Teng. “Despite a still-uncertain global economic environment, we see some signs of modest demand improvement from a rising order backlog, an inventory downturn and a contraction in finished goods.”

He said September’s figures were in line with the bank’s expectations that the recovery in manufacturing in the second half of the year would be a gradual, but fragile, one.

However, OCBC’s Ling is not expecting the latest reading to have a meaningful impact on the forecast for Singapore’s full-year gross domestic product growth. “Nine months are already under the bridge, and the regional manufacturing PMIs are still very much a mixed bag, including that from China,” she said.

Manufacturing sentiment in the other regional economies was mixed.

In China, the official manufacturing PMI gained 0.5 point to 50.2 in September – returning to expansion for the first time in six months. But the Caixin PMI, derived from smaller private manufacturers, shed 0.4 point to 50.6.

UOB economist Ho Woei Chen said the latest PMI readings as well as recent economic data from China suggest that the country’s economy continues to stabilise, with help from stronger monetary and fiscal policy support measures.

She added: “However, the recovery outlook remains challenging, with the private sector and smaller firms staying under pressure, as reflected in the underperformance in the Caixin PMI.”

In Taiwan, the S&P Global Manufacturing PMI edged up 2.1 points to 46.4, not enough to pull it out of contraction territory. Annabel Fiddes, economics associate director at S&P Global Market Intelligence, said the latest reading showed some “tentative signs of Taiwan’s manufacturing downturn easing”. However, whether business conditions stabilise depends on whether sentiment continues to improve in the coming months, she added.

Closer to home, the S&P Global Malaysia Manufacturing PMI slipped a point to 46.8, from 47.8. The S&P Global Vietnam Manufacturing PMI returned to contraction mode, shedding 0.8 point to post a reading of 49.7.

In contrast, the Philippines’ manufacturing PMI improved 0.9 point to 50.6, marking a return to expansion territory.