Singapore factory outlook falls to three-year low in September

The Purchasing Managers' Index (PMI) came in at 49.5 for September, indicating a contraction in factory activity in September.

The ongoing trade war between the US and China appears to have hit the sector badly, analysts said, and the possibility of a technical recession has cropped up once again.

Singapore also joins several other countries where a key gauge of factory activity has plunged, suggesting that the slowdown is global.

The Purchasing Managers’ Index (PMI) came in at 49.5 for last month, indicating a contraction in factory activity in September.

A reading below 50 indicates that a sector is shrinking. The PMI has now fallen for five straight months and the latest number fell sharply compared with August when it was 49.9. Last month’s PMI is the lowest since July 2016.

“The prolonged uncertainties in the major global markets have weakened demand and increased cost pressures on local manufacturers, and are further aggravated by disruptive global supply chains,” said Ms Sophia Poh, vice-president for industry engagement and development at the Singapore Institute of Purchasing and Materials Management (SIPMM), which compiles the index.

The weaker reading last month was caused by a decline in new orders and factory output, as well as faster contraction in employment and new exports, the SIPMM said.

Ms Selena Ling, head of treasury research and strategy at OCBC Bank, said while manufacturing weakness is already quite evident, its related effects on consumer sentiments and other service sectors are starting to come in as well.

“This may translate to some softness in the labour market ahead and is something that policymakers are probably watchful for,” she said.

United Overseas Bank economist Barnabas Gan added: “A sustained contraction in Singapore’s manufacturing momentum into September is likely where we think a negative growth of around 4.5 per cent year-on-year or more should trigger a technical recession scenario.”

The new orders index of 49.8 for September – down from 50.3 the previous month – was the lowest recorded reading since it came in at 49.6 in August 2016.

Both local and external demand for new orders are weak, which is not a good sign, Ms Ling said.

“The plunge in new orders is likely to weigh on business confidence and in turn their capital expenditure, as well as hiring and wage intentions. Workers may also tighten their belts and trim discretionary spending.”

Source: The New Paper

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