Why Singapore's PMI could disappoint in January

PMI expected to hit 50.1.

According to DBS, don’t pin too much hope on the January PMIs. Consensus is taking a fairly optimistic view and risks are for a disappointment come Wednesday evening.

Here's more:

Specifically, consensus expects a rise in the PMI to 50.1, from 49.7 in December. We think a sub-50 reading (i.e., further contraction) is more likely given the most recent PMI reading from China. China’s official PMI edged down to 50.5 in January, from 51.0 in the previous month.

This is the lowest in 6 months. But rather than conveniently pointing to weakening demand, we tend to think that this has more to do with the Lunar New Year festive season. Plants across China will typically shut down for up to two weeks during the festive season period. This obviously will prompt purchasing managers to cut down on their purchases of materials and components.

China is one of the key markets for local suppliers of high end electronics parts and components, chemical and petrochemical products. Note that China is the largest single country export destination for Singapore, accounting for about 13% of our total non-oil domestic exports (NODX).

So if the customers in China are cutting back on their orders, it’ll naturally have a spill-over effect on the local purchasing managers. With that, the PMI numbers for January will not look great.