Why Singapore can't be happy yet about 50.2 manufacturing PMI

Even if it broke the 6-month long contraction.

According to DBS, overall manufacturing PMI expanded for the first time after having previously recorded 6 months of continuous contraction.

The PMI posted a reading of 50.2, which was an increase of 1.6 points over the previous month. This also came in better than what consensus has predicted (consensus: 48.8).

Here's more from DBS:

But plainly, this is in line with our expectation. As it is, the same sets of figures across some Northeast Asia economies are already showing expansion in their manufacturing sectors.

Even US PMI is above 50 while Europe’s number is improving. The improvement in Singapore’s PMI simply reflects the spillover effect.

Although the strong Sing dollar policy will continue to affect export competitiveness and dampen export and industrial performance, the upswing from the demand side factors, particularly given the improved global outlook will provide some lift to the manufacturing sector in the near term.

The ex-biomedical industrial output and the non-oil domestic exports (NODX) appear to have bottomed. This would probably make for a gradual improvement in the coming months.

So the underlying message is that the manufacturing sector is gradually “stepping out of the woods”. Indeed, buildup in stocks of finished goods is suggesting a gradual restocking exercise as manufacturers respond to the pickup in orders.

Yet, electronics remains the weakest link in the broader manufacturing outlook.

The electronics sector recorded further contraction at 49.9, but this is an increase of 3.3 points over the previous month. In fact, this should change within the next 2
months as the electronics PMI it is expected to cross into the expansion level.

All sub-indices are reflecting a turning in production ahead. Fundamentally, a more pronounced improvement in demand from Northeast Asia will surely spill over to the local manufacturers.

However, the improvement is expected to be gradual, hampered by industry specific structural challenges (i.e. falling global demand in
ICs and hollowing-out in some specific segments).