Singapore manufacturing PMI falls further in December, services PMI remains in contraction territory

Manufacturing PMI of Singapore dropped further in December. This is the fourth straight month the PMI index has fallen. The manufacturing PMI index dropped by 0.4 points to 51.1, whereas the electronics PMI contracted for the second consecutive month to 49.8 in December. The electronics PMI is at its lowest print since July 2016. The electronics output and imports sub-indices have also dropped in the contraction territory. In the meantime, the manufacturing PMI has been steadily retreating from its recent high of 53.1 in January 2018, albeit it has been in the expansion territory for 28 months.

This set of domestic PMI readings did not come at much of a surprise as the regional manufacturing PMIs released earlier were also telegraphing softness. Markedly, Chinese official manufacturing PMI fell into contraction territory for the first time since July 2016, while the Caixin manufacturing PMI also fell into contraction territory to 49.7.

The domestic manufacturing PMI remaining in expansion territory in December implies two things, noted Selena Ling, Head of Treasury Research & Strategy, OCBC Bank. Firstly, the non-electronics industries are expected to have been providing a buffer to the electronics softness, and this is likely linked to the biomedical sector. Secondly, given the wide macro backdrop of tepid growth prospects and decelerating global demand for electronics, the likely trajectory is for the manufacturing PMI to continue to lose altitude in the months ahead.

From the third quarter, manufacturing momentum has slowed down. The manufacturing sector grew 5.5 percent year-on-year in the December but dropped 8.7 percent quarterly, showed the flash growth estimates yesterday.

Given that industrial production had grown by 5.5 percent in October and 7.6 percent year-on-year, the flash growth estimates suggest a 3.4 percent print for December.

“As such, there is some room for an upward revision to 4Q18 manufacturing growth, but this doesn’t alter the road ahead where a more tepid manufacturing outlook for 1H19.  Our 2019 GDP growth forecast currently stand at 2.7 percent, down from 3.3 percent in 2018”, added Selena Ling.