January PMI to languish in the contraction zone

Amid the slowdown in the Eurozone and China markets.

PMI may spring marginal upside surprise with the Lunar New Year in February, but a seasonal adjustment may reveal that manufacturing activity remains placid and unexciting.

According to a report by DBS, market expects the headline manufacturing PMI to remain in the contraction territory at 49.8, just up marginally from 49.6 in the previous month.

That is, consensus expects the slump in the manufacturing sector to persist. Understandably, with the rise in the stocks of finished goods, which reflects a build-up in stockpile, and all subindexes having declined in the previous month, the belief is that there has been a lack of significant improvement in global demand over the past months.

DBS says that we should expect the manufacturing PMI to be lifted marginally above the 50 level, which differentiates between expansion and contraction in production activity. Yet, if we seasonally adjust the series, manufacturing activity is probably placid and unexciting.

In fact, there are more risks than upsides for the manufacturing sector in the near-term given the slowdown in key markets such as the Eurozone and China.