Singapore's manufacturing PMI surprisingly jumped to 50.5

Risks loom in the horizon.

According to DBS, January PMIs surprised on the upside. Overall manufacturing PMI reverted back to expansion (50.5) after a brief dip into contraction territory (49.7) in the previous month. In addition, electronics PMI staged a strong showing, posting a reading of 52.0, up from 50.1 previously.

Here's more:

Plainly, the fact that the spike up in PMIs coincides with the supposedly Chinese New Year lull does imply that companies are anticipating stronger orders beyond the festive season. This is supported by the healthy upticks in the new orders and production indexes for both manufacturing and electronics sectors.

The increase in the inventory index also suggests some degree of restocking in anticipation of higher demand. This is further reinforced by the fact that stocks of finished goods are declining as manufacturers have been running down on existing stockpile.

In short, the strong surge in the electronics PMI, uptick in the overall manufacturing index as well as the solid showing in December industrial production index do suggest a strong start to the year for the Singapore economy. But there are still risks in the horizon.

There have been mixed signals in the US recovery. Problems in China’s financial system have re-emerged with heightened risks involved. While global economic conditions are improving, it won’t be a smooth flight to the moon. There will be bumps along the way.