Hopes of a downbeat manufacturing sector turning the corner were dashed yesterday with new figures showing factory activity shrank unexpectedly last month in its worst showing this year.
The sector, which makes up a fifth of the economy, also fared worse than its regional peers due to economic restructuring and a sluggish global recovery, local economists said yesterday.
The Purchasing Managers' Index (PMI), a gauge of anticipated factory orders, fell to 49.7 for last month - its lowest point since December last year.
A reading above 50 signals expansion, while one below 50 indicates contraction.
The figure was also 1.8 points lower than July's reading of 51.5, marking the index's biggest drop since March 2011, economists noted. It reversed the seven straight months of expansion seen since the start of this year, and came in below economists' expectations of a reading of 51.
Calling last month's performance "a disappointment", OCBC economist Selena Ling said local manufacturers still face "significant headwinds".
Noting that the only other country in Asia with a PMI below 50 last month was Indonesia, she said: "This is a real knock to market confidence for Singapore's manufacturing outlook for the next three to six months."
Other manufacturing powerhouses across Asia recorded expansions. Taiwan's PMI was 56.1 and South Korea's at 50.3, while China's was 51.1 last month.
The crucial electronics industry, which makes up about a third of Singapore's manufacturing sector, also took a hit. Although it continued to expand last month, with a PMI of 50.7, that reading was still 1.7 points lower from July, which Ms Ling noted was its sharpest fall since October 2012.
If Singapore's factories continue to perform worse than the rest of the region in the coming months, it could signal local manufacturers are having problems staying competitive, she said.
However, DBS economist Irvin Seah said last month's PMI drop was a "pullback" from high sentiments in July, which saw manufacturers ramp up their inventory on optimism about economic growth in the United States then.
"It is a fall back to reality. The global recovery is in progress, but it is still very sluggish." He added that more manufacturers may move out of Singapore in the coming months as restructuring continues to take its toll on profits.
Still, Credit Suisse economist Michael Wan said the sector will recover. "The widely anticipated pickup in global growth has been quite patchy, but we expect things to get better."
The manufacturing sector's economic output rose 1.5 per cent in the second quarter this year from last year, after climbing 9.9 per cent in the first quarter.
This article was first published on September 03, 2014.
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