Tuesday, July 6, 2010

Indicator points to slower June manufacturing growth

Purchasing Managers Index dropped to 51.3 in June from 52.2 in May

SINGAPORE'S manufacturing sector continued to expand in June, though at a slower pace from the month before as global manufacturing activity dipped.

The Singapore Institute of Purchasing & Materials Management (SIPMM) said yesterday the Purchasing Managers Index - a leading indicator for manufacturing - dropped to 51.3 in June, from 52.2 in May. SIPMM said the dip was due to lower new orders and a fall in production output and imports. In particular, output from the electronics sector moderated to 50.5 in June, from 53.7 in May.

A reading above 50 indicates an expansion in manufacturing activity, while a reading below 50 marks a contraction.

The moderation in Singapore's factory output is in line with the global picture. Economic powerhouses the US and China have also seen slower growth in manufacturing. Economists here reckon the drop in pace is expected to continue given the more sombre global economic climate, but is unlikely to drag the local economy into recession.

OCBC economist Selena Ling said: 'The pace of growth will definitely moderate in the next few months, especially since growth in the first five months was phenomenal. That kind of pace, given the headwinds from Europe and US, is not sustainable. Also, tightening measures in China seem to have taken effect.'

Credit Suisse's Asian chief economist Joseph Tan said that while growth is tapering, the 50-plus reading indicates the sector is still on an expansionary curve. And while there could be a contraction in the second half, he does not think a recession is on the cards.

'This moderation is to be expected given the very sharp v-shaped rebound that we saw,' he said. 'There may be some contraction for a few months - but it won't be a sustained drop to recessionary levels.'

Last week, China's PMI data showed the pace of manufacturing growth there slowed in June, as government moves to cool the property market and curb bank lending began to bite. China's PMI fell to 52.1 in June from 53.9 in May. June's reading was its weakest since February.

Similarly, factory output in the US grew at a slower rate in June, with the Institute for Supply Management (ISM) there saying its index of national factory activity eased to 56.2, from 59.7 in May.

Source: Business Times, 6 Jul 2010

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