Singapore's PMI turns positive for the first time in 6 months

SINGAPORE’s manufacturing sentiment inched into positive territory in July for the first time in six months, but economists caution that this may not translate into improved hiring sentiment in the second half of 2020.

July’s Purchasing Managers’ Index (PMI) rose to 50.2 points, a 2.2-point gain from the previous month, said the Singapore Institute of Purchasing and Materials Management (SIPMM) on Monday.

A reading above 50 on the index indicates growth from the previous month, and one below 50 means a contraction.

This is the first time the PMI has crossed into positive territory since the fears of the novel coronavirus began, weighing on manufacturing sentiment. SIPMM attributed July’s reading to an improvement in the new orders index, a first-time expansion in the new exports and factory output indices, as well as a faster expansion in the inventory index.

Sophia Poh, vice-president of industry engagement and development at SIPMM, said the July reading is a welcome respite for Singapore’s manufacturing sectors, even though local manufacturers remain concerned about the growth outlook due to the pandemic and ongoing trade disputes.

However, both the employment and supplier deliveries indices contracted at a faster rate, SIPMM noted, with the overall employment index for the manufacturing sector now having posted contractions for six consecutive months.

Selena Ling, chief economist at OCBC, said this suggests that the improvement in manufacturers’ sentiments did not extend to greater hiring intentions yet and global supply disruptions had eased, but not fully subsided.

"This PMI improvement pointing to a modest increase in manufacturing momentum has to be seen in the context of the recent business expectations survey for manufacturers, which had affirmed that a net 7 per cent manufacturers still tipped a worse H2 2020 business outlook," she said.

Barnabas Gan, economist at the United Overseas Bank, said hiring sentiments are expected to continue to stay soft for the rest of 2020, pointing to preliminary data from the Ministry of Manpower that showed Singapore’s unemployment rate rising to 2.9 per cent in the second quarter of 2020, the highest jobless rate in over a decade.

Meanwhile, electronics sector PMI edged up to 49.2 points in July, an increase of 1.6 points from the preceding month, even though this is its sixth month of contraction.

However, OCBC’s Ms Ling noted that the recent US earnings season revealed that global technology companies like Apple, Amazon, Facebook and Alphabet were still thriving during the pandemic, as consumers work, shop, and entertain from home.

"So the question is if Singapore’s electronics industry can ride this wave to capitalise on the broader industry trends," she said. "At this juncture, we do expect that the domestic manufacturing sector may recover to marginal positive year-on-year growth by the end of the year, after contracting in Q2 and likely remaining weak in Q3."

UOB’s Mr Gan said further expansions in Singapore’s headline PMI will still depend on its external environment and manufacturing outlook.

He said Singapore’s economic prognosis may stay soft in the second half of 2020, as the slowdown in global demand could continue to discourage manufacturing momentum amid uncertainty over how the Covid-19 situation would evolve in the coming months. The risk of a spike in infection in Singapore’s key trading partners may also weigh on sentiment, he added.