S'pore factory activity records slower expansion amid Covid-19 supply chain disruption concerns

SINGAPORE – Supply chain disruptions stemming from a resurgence in Covid-19 cases across the region hit manufacturing activity here in August although the sector still managed to expand output for the 14th consecutive month.

The Singapore Purchasing Managers’ Index (PMI) came in at 50.9, down 0.1 points from July, noted data on Thursday (Sept 2).

A PMI reading above 50 indicates expansion; one below reflects contraction.

The reading for the key electronics sector came in at 51, posting a faster rate of expansion compared with July’s 50.8, and notching up its 13th straight month of growth.

Overall PMI, which was in line with economist estimates in a Bloomberg poll, was weighed down by slower expansion of new orders, factory output and inventory, said the Singapore Institute of Purchasing and Materials Management (SIPMM), the compiler of the index.

Data on finished goods was more buoyant, bouncing back in August after contracting for four consecutive months.

Overall employment expanded for the sixth straight month although imports, supplier deliveries and order backlogs posted slower growth and data pointed to an increase in input prices.

Ms Sophia Poh, vice-president of industry engagement and development at the SIPMM, said the latest readings, particularly for electronics, augur well for Singapore’s manufacturing growth.

“However, local manufacturers continue to be concerned about supply chain disruptions arising from possible retightening of Covid-19 measures in a region where infections are increasing at an alarming rate and vaccination programmes are slow,” she added.

The PMI’s slower rate of expansion here mirrors declines seen in regional economies, with China, South Korea, Vietnam and Taiwan all recording lower readings in August compared with July.

South-east Asian markets were hit particularly hard, with factory activity in Vietnam and Malaysia shrinking due to virus outbreaks and output suspensions.

UOB economist Barnabas Gan said Singapore’s headline PMI reading is likely due to a slightly softer external environment, as reflected in the slower expansion rates in new orders and factory output.

The readings follow data showing Singapore’s export and non-oil domestic export growth in July slowed both on a month-on-month and year-on-year basis.

“Separately, the faster rates of expansion in input prices may be a sign of higher inflationary pressures in the immediate horizon,” Mr Gan said, noting that assuming a portion of higher input prices will spill over to consumer prices, Singapore’s inflation could pick up further in August.

DBS Bank senior economist Irvin Seah pointed out that August’s PMI readings reflect that growth in the overall manufacturing sector is easing as economic activities gradually normalise.

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“While we continue to expect the manufacturing sector to remain in expansion mode, some further moderation could be on the cards amid resurgence in Covid-19 infections in the region and in key export markets such as the United States and China, as well as major policy shift in China resulting in a slower pace of growth in the coming quarters,” he added.

Two separate surveys out on Tuesday showed that China’s manufacturing activity grew at a slower pace in August. China’s Caixin/Markit PMI fell from 50.3 in July to 49.2 to enter contraction territory for the first time in nearly 18 months.

Barclays analysts noted that China’s manufacturing PMI decline for five straight months partly reflects reduced demand from heavy and polluting industries amid policy efforts to achieve carbon-neutral goals and Covid-19 cases flare-up that further disrupted supplies.

“Even though such stringent measures are temporary, China’s zero-tolerance policy suggests risks of further disruption remain high, unless the pandemic is brought fully under control,” they reported.

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