Wednesday, September 04, 2013

Singapore's electronics sector continues to recover

Singapore's electronics sector continues to recover in August, with its latest Purchasing Managers' Index (PMI) rising for the seventh straight month.

However, the manufacturing economy grew slower than expected last month.

The PMI for the manufacturing economy fell unexpectedly, dropping 1.3 points to 50.5 in August, its lowest reading since February this year.

A reading above 50 indicates expansion, while that below 50 shows a contraction.

Economists said the decline was partly due to fewer working days during the month as a result of the Hari Raya and National Day holidays.

However, the electronics sector brought some cheer.

The electronics PMI rose a significant 1 point to a 3-month high of 51.3, on stronger orders.

Electronics exports also grew at a faster pace, with a reading of 54 points -- the highest since May 2011.

Song Seng Wun, CIMB Research's regional economist, said: "Overall orders, particularly... export orders, are picking up pace -- very encouraging, certainly indicating and supporting the recovery in external demand story.

"We are talking about the US economy on firmer growth trend -- we are seeing firming demand for automobiles and other durables.

"In Europe, the area-wide PMI is also showing modest growth as well, with an overall reading above 50 for the second straight month, after basically two years of contraction.

"That should feed into gradual improvement as far as the tech manufacturers and exporters are concerned."

Some economists said that as the electronics sector continues to recover, some manufacturers may face challenges in hiring and managing higher wage cost, amid a tight labour market.

Another downside risk ahead is the geopolitical tension in the Middle East.

Concerns over a military strike on Syria for its alleged use of chemical weapons sent oil prices up nearly 3 percent last week.

But it has since eased as fears of an imminent strike against Syria faded.

United Overseas Bank's senior economist Alvin Liew said: "If the spike in oil prices is just temporary, I think Singapore is well positioned to deal with it.

"But if this proves to be something more pronounced and more permanent, at least lasting for a few quarters, then that surge in energy prices could have a big impact, definitely, on businesses, especially manufacturing."

Barring unforeseen events, economists expect a modest recovery in Singapore's manufacturing sector this year, and the electronics sector could lend some near-term support to offset the volatility of the biomedical cluster. -Channel News Asia

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