The US-China trade hostility, which is destroying growth chances in China and, by extension, Chinese demand for manufactured goods made in Singapore have made Singaporean producers jittery. Adding to this unease is the impending global collapse in technology demand which have made manufacturers in the country agitated.
“Anecdotal evidence suggests that manufacturers are increasingly concerned about the escalation of trade tensions between the world’s two largest economies,” said the Singapore Institute of Purchasing and Materials Management, which compiles the PMI index by surveying around 150 industrial firms.
It added that the sluggish overall reading was due to slower growth recorded in fresh orders, new exports, factory output, inventory and the employment level.
Manufacturing growth plummeted in May and registered its first contraction in over two and a half years, as trade tensions between the United States and China escalated last month.
In an extension of a growth slowdown since early last year, Singapore’s Purchasing Managers’ Index (PMI), a major indicator of activity in the manufacturing industry, slipped 0.4 point to 49.9 last month from April – dipping below 50 for the first time since August 2016.
A reading above 50 will show that the manufacturing economy as expanding, however, one below 50 shows an overall drop. The electronics sector PMI saw its seventh consecutive month of contraction, dipping 0.1 point to 49.4.
CMC Markets analyst Margaret Yang expects new orders and exports to remain weak in the months to come, as additional tariffs by the US and China kicked in around the end of last month to early this month.
Part of a global trend
The slackening of the manufacturing sector is part of a global trend, according to Ms. Yang. “The figure is in line with a broad slowdown in manufacturing activities across the globe as cyclical slowdown deepens on the rise of detrimental trade tariffs.”
She added that with the tariffs, higher import and input prices are “likely to inhibit profit margins, and higher prices will eventually be transferred to end users.”
However, it was noted that the Singapore PMI plummeted less than that of Malaysia, which was down 0.6 point to 48.8, and South Korea, which fell 1.8 points to 48.4.
According to UOB senior economist Alvin Liew, the direction for manufacturing is anticipated to aggravate further if US tariffs are imposed on the remaining US$300 billion worth of Chinese exports to the US. Morgan Stanley said a global recession could begin in nine months if these tariffs were imposed.
ING chief economist Robert Carnell added: “The environment can remain very weak, at least until there is some thawing in the trade war.”
Mr. Carnell further said that while it is hard to surmise what US President Donald Trump will do next, he will likely be considering the effect of the current trade war on his chances of re-election, specially if the stock market takes a hit.
“With the election race maybe not kicking off in earnest until early next year, this leaves plenty of room for negativity in the meantime,” he said.
For the Asian region and for technology hubs such as Singapore, the global technology crash combined with complications brought about by replacement electronics which are being postponed until the roll-out of 5G technology, would be the industry’s “real game changer.” -/TISG