Why the downward trend in Singapore PMI isn't surprising at all

Is it losing its egde to regional rivals?

According to DBS, September PMIs corroborate its long-held view that manufacturing will be flat in the coming months.

Here's more:

Both overall manufacturing and electronics PMIs are losing steam. Overall PMI remains flat at 50.5 while the electronics PMI has eased by 1.0pt to 50.3. And this is despite the anticipated increase in demand from the year end festive season.

Either Singapore’s manufacturing sector is losing its edge to regional competition or this so called global recovery has been weaker than what most had anticipated earlierin the year. We think it is a combination of both factors.

The sustainability of the improvements in regional PMIs remain questionable due to a lack of positive catalyst. The US recovery hasn’t been as strong, which prompted the Fed to push back its QE tapering.

Europe remains fundamentally fragile despite being technically out of recession. Asia is undergoing internal consolidation, particularly in China, which makes for slower growth, weaker regional demand.

With all the odds stacked against regional manufacturers, PMIs can’t possibly be trending up. At best, the trajectory ahead will be flat.

Singapore’s manufacturing sector is no exception; hence the recent downward trend in the PMIs should not come as a surprise. Moreover, the manufacturing sector has been bearing the brunt of the on-going restructuring, which has been undermining the competitiveness and profitability of local manufacturers.

The labour crunch is also hampering the ability to ramp up production and to take on more orders. In short, local manufacturers are facing the double whammy of the restructuring drag and the lack of a strong cyclical lift.

New orders and new exports orders are still heading lower. That explains the continued running down of inventories and stocks of finished goods by manufacturers.

The slight upside blip in the production sub-index for the overall manufacturing sector is probably a reflection of an attempt to meet the year end festive order, and hence is unlikely to be sustained.

At best, both overall manufacturing and electronics PMIs will hug along the 50% level in the coming months.