Year of the Snake sees factory output slithering down

Fiona Chan

The Straits Times

Publication Date : 05-03-2013

 

The Chinese New Year holiday likely sent industrial production back into negative territory last month after a burst of improvement in January.

The latest Purchasing Managers' Index (PMI), an early indicator of the sector's health, came in at 49.4 last month, down from 50.2 in January. Any reading above 50 signals expansion.

But while manufacturing output fell overall, the index did point to an unexpected lift in the electronics segment.

This followed four months of electronics contraction and came despite the overall manufacturing sector shrinking, leading to some optimism among economists.

"We expected the electronics cluster to turn around due to improving demand. But the uptick seems to be earlier than expected," said DBS economist Irvin Seah. "Whether this improvement will be sustainable remains to be seen," he added, noting that the electronics cluster still suffers from high costs, a strong Singapore dollar and an inability to be part of the regional supply chain.

Still, the recovery in electronics "is becoming believable", according to Barclays economist Joey Chew. "The PMI expansion is mirroring stronger manufacturing statistics from the United States and improvements in other tech indicators," she said.

"But we are starting from very depressed levels here, so it will still be a while yet before electronics can contribute to Singapore's growth in any material way."

Meanwhile, the overall manufacturing sector could have been let down by the Chinese New Year holidays in Asia, Chew said.

"Orders from North Asia could have been brought forward or delayed", producing a dip in February, she explained.

The slip could also have been due to a soft patch in pharmaceuticals production, suggested OCBC economist Selena Ling.

Singapore's tightened foreign manpower policy, as well as elevated costs, may be hampering the recovery as well, she added.

The February dip in the PMI to 49.4 was due to lower levels of new orders and a first-time contraction in new export orders, said the Singapore Institute of Purchasing and Materials Management, which publishes the monthly index.

The electronics PMI reversed the trend: it reached 52.1 last month, up from 49.9 in January, on the back of expansion in new orders from both domestic and overseas markets.