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NEWS UPDATES Asean Affairs    3 October 2012

Singapore factory activity slumps for 3rd month

03-Oct-2012

Factory activity in Singapore shrank for a third straight month in September, in line with much of Asia, as alarm bells over the health of the global economy rang louder.

Fewer manufacturers in trade-dependent Singapore felt confident enough about global sales to ramp up production ahead of Christmas, economists say.
They say a technical recession is now almost a foregone conclusion for Singapore. This is two straight quarters of contraction.

The economy shrank 0.7 per cent in the April to June quarter and is likely to have contracted again in the just-ended quarter.

Singapore's Purchasing Managers' Index (PMI), a guide to anticipated factory orders, fell to 48.7 last month, down from 49.1 in August - below the market consensus of 49.5. A reading above 50 signals expansion, while one below 50 indicates contraction.

This was mirrored across Asia, as major manufacturing hubs such as mainland China, South Korea and Taiwan posted slumps too.

Despite the downturn, economists hope a third round of quantitative easing (QE3) in the United States - a technical term for a huge money-printing exercise - will boost trade early next year.

Weak overseas demand is not the only culprit for the manufacturing slowdown, said DBS economist Irvin Seah, citing the Republic's tight exchange rate and foreign labour policies.

He expects the Monetary Authority of Singapore to ease its exchange rate policy at the policy review this month. He added that there was "significant room to unwind the earlier hikes in foreign workers' levies to provide some breathing space for companies".

The dip in overall PMI last month was driven by a further decline in new orders and a contraction in new export orders, said the Singapore Institute of Purchasing and Materials Management, which compiles the index.

The drop in new orders was particularly worrying, suggesting any ramp-up in production in anticipation of year-end sales "might not materialise" despite earlier talk that sales of the iPhone 5 and Windows 8 tablets could boost the electronics sector, said Credit Suisse economist Michael Wan.

Although the electronics sector was a bright spot in August, posting a reading of 50.7, it slowed last month to 50. Electronics accounts for a third of manufacturing here, which in turn represents about a quarter of the economy.

OCBC economist Selena Ling said Singapore's September PMI reading was in line with a "disappointing slew" of manufacturing PMIs globally, especially China's.
China's official September PMI came in at 49.8. Other factory bellwethers such as Japan posted 48, and Korea was a dismal 45.7.

HSBC economist Frederic Neumann said Asia is unlikely to see an "outright tumble" like in late 2008 unless new US or euro zone problems arise. But exports in the region will slow further, he said.

Still, economists hope stimulus measures such as QE3 will hit home by early next year.

Barclays Capital economist Leong Wai Ho said that QE3's impact on trade will be less direct and will take more time.

"The first step is when it increases the willingness of US consumers to spend on homes and electronic gadgets. Once that happens, more new orders will reach Asia," he said.


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