Singapore economy close to bottom but not recovery
6 September 2001
The latest business survey from the Singapore Institute of Purchasing and Materials Management (SIPMM) raises hopes for Singapore manufacturers. The SIPMM's Purchasing Managers' Index (PMI) rose for the first time in six months in August, rising 6.3 points to 48.7. The electronics production index jumped 9.7 points to 48.4. The PMI's new orders and new export orders indices for August rose above the 50-point threshold, which indicates an expansion. The new orders index rose 4.2 points to 50.1, while the new export orders index was 6.2 points higher at 51.
Do these figures indicate that a recovery is at hand? Not necessarily, according to Alick Chia, head of SIPMM's business survey committee. "The August PMI provides some happy relief. However, it does not mean there is a recovery yet. We need to have continued upward movement in the PMI over the next two months to be sure that a recovery is in the pipeline." He added that the August data could be only a reflection of seasonal demand as manufacturers boost production ahead of the Christmas season.
The index of manufacturing activity for August reported by the National Association of Purchasing Management (NAPM) in the US showed similar improvements. The manufacturing index rose to 47.9 from 43.6 in July. The latest reading is the highest since November last year. The new orders component rose to 53.1 -- the highest since April 2000 -- from 46.3 in July. The production index rose to 52.2 -- the highest since July last year -- from 46.4 in the previous month. So new orders and current production are already increasing. However, ominously for Asia's exporters of technology goods, the indices for tech-related sectors were reported to be in the mid-30s to mid-40s.
Other recent reports emphasise the need for caution in interpreting these data. Bank lending in Singapore in July was down 0.5 percent from June, according to the Monetary Authority of Singapore (MAS). The MAS also reported that Singapore's money supply, measured by M1, M2 and M3, all shrank in July. M1 shrank 1.9 percent over June, while M2 and M3 shrank 2 percent.
In the technology sector, Taiwan's VIA Technologies, a leading fabless supplier of PC core logic chipsets, microprocessors, and multimedia and communications chips, said the outlook for its business for the rest of the year remains depressed, and professed difficulty in predicting when demand would recover. The rise in its sales in July and August was attributed to a seasonal factor, as computer-makers gear up for back-to-school sales in the US, while uncertainty continues to loom over the year-end Christmas sales and demand for PC subsequently. In a similar vein, Ericsson, the Swedish telecom equipment maker, said it sees no recovery in sight. Ericsson expects the market for mobile systems to show flat to modest growth this year and next.
Indeed, world-wide sales of semiconductors fell more than 37 percent in July from a year ago, from US$17.29 billion to US$10.86 billion, the Semiconductor Industry Association reported recently. However, on a more optimistic note, the association said that efforts to cut down inventories should lead to a return to sequential growth for the industry in the December quarter.
Regional economic news has been largely negative. Following the announcement of a 2.4 percent decline in Taiwanese real GDP on a year-on-year basis, Hong Kong's second quarter real GDP growth was reported to have slowed to 0.5 percent year-on-year, while quarter-on-quarter, the economy actually contracted 1.7 percent. However, the Korean economy grew 2.7 percent year-on-year, or 0.5 percent quarter-on-quarter, while in Malaysia, the leading index recorded an increase of 0.2% in June to 182.8 points, the third increase since its dip in March.
So the economic news continue to be highly mixed. It seems likely that the Singapore economy is close to the bottom of the recession, but a recovery might not be imminent, or might be weaker than usual. The latter would take into account the massive global over-investment in technology and capital goods over the past few years, as well as the diversion of much manufacturing investment to China. Thus, the usual cyclical bounce from the bottom of a recession, as was seen after the 1998 recession, might be absent this time around.
In my commentary on 16 August, I had forecasted a year-end target of 1800-1900 for the Straits Times Index (STI). Almost a month on, the lack of evidence of any improvement in the Singapore economy, other than the PMI figures, suggests that a reversion of the STI to a more normal valuation, which I estimate to be over 2000, might be delayed. Therefore, I am revising my forecast, widening the range to 1600-1900.
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