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Singapore's PMI dips for fourth consecutive month

Singapore's PMI dips for fourth consecutive month

Singapore's manufacturing activity inched lower for the fourth consecutive month in July, and the outlook for the remainder of the year is cloudy.

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By Jackson Lewis 04.08.2018

Singapore’s manufacturing activity inched lower for the fourth consecutive month in July, and the outlook for the remainder of the year is cloudy as the US-China trade conflict takes its toll on market sentiment.

The Singapore Institute of Purchasing & Materials Management (PMI) acts as the primary indicator for economic activity, and the figure for last month stood at 52.3, a 0.2-point drop from June. This does tally with expectations from economists but is another indication that growth will slow during the third and fourth quarters of 2018.

As seen in recent manufacturing reports released by other countries in Asia, the downward trend is not pushing activity into negative territory just yet. The successive drops have crimped manufacturer confidence, but the fact that the reading remains in excess of 50 does indicate growth. The figure needs to fall below 50 to indicate a contraction. 

Growth is slowing, however, and the latest numbers reflect a decrease in the intensity of factory output and new exports and orders in addition to a lower inventory level. Data shows that stocks of finished goods reached a high not seen in almost seven-and-a-half years, with a 53.1 reading.

The electronics PMI also fell by 0.3 points compared to the previous month as growth cooled, but that figure was enough to extend its period of expansion to two straight years.

The lowered sentiment was not a surprise due to the uncertain political climate as the US and China continue to tussle over trade. According to OCBC Economist Selena Ling, the lingering tensions will have an impact on Singapore, as it remains a small and open economy. Ling added that any temporary diversions in the supply chain are unlikely to offset the spillover.

Trade is fanning pressure in Singapore’s manufacturing sector, but economists already expect growth to climb down steadily during the second half of the calendar year. This is due in part to high base effects and changes in the electronics cycle. Singapore’s PMI readings largely dovetail with those from other countries in the Asia region. China recently saw its figures fall, while the Nikkei Asian Manufacturing PMI retreated by 0.6 points to 50.4 last month.

Singapore will welcome US Secretary of State Mike Pompeo this week as Washington looks to talk about the finer details of its Indo-Pacific strategy during a five-day tour of Southeast Asia. Pompeo made the trip on Wednesday and will also visit Indonesia and Malaysia.

As evidenced from Singapore’s latest PMI readings, there remains confusion and skepticism about US policies and the trade dispute with China.

“Several have worried that the Trump administration could force countries in the region to choose openly between Washington and Beijing, a move that they say would backfire," said Joshua Kurlantzick, Council on Foreign Relations Senior Fellow for Southeast Asia.

While countries in Southeast Asia recognize that China’s trade practices and investments are an area of concern, Kurlantzick is not sure whether any states will publicly endorse any strategy outlined by Pompeo and the Trump administration. Singapore PM Lee Hsien Loong has previously spoke about the dangers of the “us or them” nature of initiatives pushed by the US.

Details of the US government’s role in the region are unclear, and American Institute Foreign and Defense Policy Studies Visiting Fellow Michael Mazza wants progress in this area this week. He said: "Hopefully, Secretary Pompeo will use his travels this week as an opportunity to begin laying out a comprehensive American strategy for Southeast Asia – explaining why it matters, what US goals are and how the United States will work to achieve them.”

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