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Singapore's manufacturing activity contracts in January

The latest Purchasing Managers' Index (PMI) reading released on Tuesday (Feb 2) came in at 49.0, a 0.5 drop from the December reading, and the seventh straight month of contraction.   

SINGAPORE: Manufacturing activity in the Republic contracted for the seventh straight month in January amid a decline in new orders, a drop in factory output and lower employment.

The latest Purchasing Managers' Index (PMI) reading released on Tuesday (Feb 2) came in at 49.0, down from the December 2015 reading of 49.5. A reading above 50 means that the manufacturing economy is generally expanding, while a reading below 50 indicates contraction, according to the Singapore Institute of Purchasing & Materials Management (SIPMM),

Inventory for manufacture expanded for the second month in a row, due to the faster rate of supplier deliveries. However, new export orders continued to contract since January last year, while stocks of finished goods continued to accumulate since April 2015.

ELECTRONICS SECTOR PMI ALSO DOWN

Manufacturing activity in the electronics sector also contracted for the seventh straight month in January, with the PMI coming in at 48.5, down from 48.9 in December. The drop was due to a continued decline in new orders, factory output as well as employment in the sector, said SIPMM.

Inventory for the electronics sector expanded, due to faster deliveries from electronics suppliers. However, new export orders continued to contract for the 12th consecutive month, and this affected the supporting industry and dragged down the overall manufacturing economy, said SIPMM.

RECOVERY WILL BE HARD: ANALYST

Looking ahead, one analyst said the problems facing Singapore manufacturers are partly structural, which makes recovery a lot harder.

Said Mr Ng Weiwen, an economist at ANZ: "The reconfiguration of regional supply chain in this region, with China embracing vertical integration domestically (is one factor). The second factor would be the declining import intensity in both the US as well as China. So for instance in the US right now, they are importing less than half post-GFC (global financial crisis) as compared to what they did pre-GFC.

"And this brings us to the third point, whereby there's greater consumption of services, in both the US and China. Increasingly, we are seeing a circular shift towards services trade as compared to merchandise trade. So this effectively means that Asia's trade weakness will inevitably have a knock-on impact for Singapore's manufacturing sector."

Singapore's manufacturing sector has also been affected by the slowdown in China, which is one of the Republic's largest export markets. Data released this week showed that factory activity in China skidded to a three-year low in January,

South Korea’s exports plummeted nearly 20 per cent in January, while Taiwan's GDP shrank in the last three months of 2015.

"The whole region is also suffering from external demand not being as strong at the moment," said Mr Jeff Ng, an economist at Standard Chartered Bank. "For any turnaround, I think you really need some of the domestic demand across the rest of Asia to start pulling together, before some of this production momentum can be restored."

Standard Chartered expects China's GDP to grow by 6.8 per cent this year, as compared to the 6.9 per cent growth in 2015.