Expect moderate growth in manufacturing

This article is more than 12 months old

While it has likely peaked, economists say that sector won't dip into contraction

The manufacturing sector continued to power ahead last month on the back of continued strong expansion.

But the sector, which makes up a fifth of the Singapore economy and has been a key growth driver this year, has likely peaked and could see activity moderate in the coming months, economists say.

The Purchasing Managers' Index (PMI) - an early indicator of manufacturing activity - logged its 11th straight month of expansion last month.

The reading of 51 was up marginally from June's 50.9.

A reading of 50 and above indicates expansion.

Last month's reading was lifted by improvements in new domestic and export orders, though a dip in employment in the sector, and lower inventory levels weighed on the numbers.

Meanwhile, the PMI for the electronics sector also recorded a marginal increase to 52.2, from June's 52.1.

This was its 12th straight month of expansion.

Strong global demand for electronics since the fourth quarter of last year - in particular, for semi-conductors - has given Singapore's manufacturing sector a shot in the arm.

The PMI data was compiled by the Singapore Institute of Purchasing and Materials Management from a monthly poll of purchasing executives at about 150 industrial companies.

"PMIs are indeed running sideways as expected... While this is the 11th consecutive month of expansion, the rally has pretty much peaked," said DBS senior economist Irvin Seah.

"Although we do not expect the PMIs to fall back into the red (below 50), there is limited upside from here on.

"Production capacities in some industries, such as electronics, are nearing their limits, while demand could also ease off towards the end of the year."

Singapore's strong showing bucked a regional trend, said OCBC economist Selena Ling, noting that manufacturing PMIs have dipped back into contraction territory for South Korea, Thailand, Malaysia, Indonesia and India.

She pointed out that a recent survey of manufacturers' business expectations done by the Economic Development Board also pointed to slightly softer sentiment in the sector.

Manufacturing growth is expected to moderate from the first half's stellar 8.3 per cent showing to a more modest 5.1 per cent in the third quarter, she added.

Mr Jeremy Fong, managing director of precision engineering firm Fong's Engineering & Manufacturing, said he expects sales to be 20 per cent to 30 per cent higher this year compared with last year.

The company mainly supplies equipment to the medical industry.

"This year will be much better than last year, mainly due to more demand from the US and new product launches," he said.

"Our customers are constantly innovating and coming up with new technologies and designs every few years, and we have been doing the same."