Singapore: Unexpected drop in the Manufacturing PMI – UOB

Senior Economist at UOB Group Alvin Liew assesses the recently published Manufacturing PMI in Singapore.

Key Takeaways

“Singapore’s manufacturing Purchasing Managers’ Index (PMI) edged slightly below 50.0, at 49.9 in Sep, marking the first contraction in overall activity for the manufacturing sector after 26 straight months of expansion in overall activity since Jun 2020 (48.0 in Jun 2020).”

“More importantly, the electronics sector PMI slipped further into contraction territory, by another 0.2 point to 49.4, the second contraction in a row after two years of continuous expansion, and the lowest reading since Jul 2020 (at 49.2). The dismal electronics reading was due to a faster rate of contraction in many of the key metrics including the sub-indexes of new orders, new exports, output, finished goods and imports. In comparison to the overall employment index (which rose further to 50.3 from 50.2), the electronics employment index slipped below 50 (to 49.8) for the first time since Oct 2020.”

“Manufacturing Outlook – The latest headline and electronics PMI number painted a consistent picture from what we saw in the latest non-oil domestic exports (NODX) and industrial production (IP) data. We are cautiously positive on the outlook for transport engineering, general manufacturing, and precision engineering, to drive overall manufacturing growth (which will provide some support to overall PMI) but we see a weaker electronics performance and slowing demand from North Asian economies that could increasingly weigh on NODX momentum and manufacturing activity. We maintain our Singapore manufacturing growth forecast at 4.5% in 2022 (from 13.2% in 2021) but we expect the sector to contract by 3.7% in 2023 due to the faltering outlook for electronics and weaker external demand. In the same vein, our full year 2022 GDP growth forecasts are unchanged at 3.5% but growth will likely slow significantly to 0.7% for 2023, as we now project the US and European economies (which are key end demand markets for Singapore) to enter into a recession in the next 6-12 months amidst aggressive monetary policy tightening stance among these advanced economies, while the electronics manufacturing outlook looks precarious as we head toward end2022/early 2023.”