Posted on 05 Jan 2012
Factory activity shrank for a sixth straight month in December, as the important electronics sector slipped backwards again after a two-month turnaround.
The latest reading of the closely watched Purchasing Managers' Index (PMI) confirmed a trend of slowing manufacturing activity reflected in economic data released on Tuesday.
The PMI registered an overall reading of 49.5 last month, up 0.8 points on November's reading of 48.7. A reading below 50 signals contraction, while one above 50 means expansion.
The PMI reflects anticipated factory orders, based on interviews with purchasing managers at more than 150 industrial companies here.
The latest slide was due to fewer new orders and new export orders, as well as lower output, said the Singapore Institute of Purchasing and Materials Management, which compiles the index.
Its executive director Janice Ong said anecdotal evidence from the survey suggested "local manufacturers are becoming more cautious in loading their inventories". She added they are also delaying hiring decisions until more certain times.
The negative PMI reading underscores economists' warnings that manufacturing here may face tough times as overseas demand becomes weaker.
Advance Ministry of Trade and Industry (MTI) estimates out on Tuesday pointed to a decline in factory activity – particularly in electronics – as the culprit for a slowdown in fourth quarter economic growth. The manufacturing sector grew 6.5 per cent in the three months to Dec 31 compared with the same period in 2010. But this was less than half the pace in the three months ending on Sept 30.
The MTI expects the economy to grow 1 per cent to 3 per cent this year.
It said on Tuesday that fourth-quarter gross domestic product (GDP) was 4.9 per cent lower than third-quarter GDP, though it was 3.6 per cent higher than in the last three months of 2010.
This translates to full-year economic growth of 4.8 per cent, broadly in line with previous forecasts of 5 per cent.
The PMI for electronics declined again after increasing in November and October. The reading fell markedly to 49.7, down from 50.9 in November.
The institute said the fall in electronics was due to "a further contraction in new orders from overseas and domestic markets", adding that employment in the electronics sector also declined in November and last month.
DBS Bank economist Irvin Seah said that "given the downside risk and uncertainty in the external environment", these results were not surprising.
"The outcome for the electronics PMI reaffirms our view that there is no respite in sight for the electronics industry in the next six months... It's going to get worse before it can get better."
The PMI indices of most major economies showed expansion last month, with the exception of the euro zone.
China's official PMI for last month unexpectedly recovered to 50.3 after dipping below 50 in November.
Wrote Societe Generale analyst Wei Yao in a note: "An early Chinese New Year in January probably accounted for most of the surprise, reminding us [again] not to underestimate the consumption power of Chinese households."
The PMI in India rose to 54.2, the most in six months, from 51 in November.
In the US, manufacturing activity has been gradually rising with last month's PMI recorded at 53.9, its highest reading since last April. It was up 1.2 points from 52.7 in November and indicated expansion for the 29th consecutive month.
The euro zone was the exception. Its PMI stayed below 50 though it rose slightly to 46.9 for last month from a 28-month low of 46.4 in November.
"Generally the uptick in the December PMI figures globally appears to suggest some tentative signs of stabilization after weakness in previous months," said Citi economist Kit Wei Zheng, though he added that technical recession in the first quarter of this year "remains a risk".
"Nonetheless, this initial sign of some leveling off in economic weakness would suggest a firmer bottom in economic activity may not be far off, possibly within the current quarter." (mtq)
