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Output data flags risk of recession in S'pore

Publication Date : 04-01-2013


The risk of Singapore slipping into a technical recession remains very much present going by the muted factory output figures released yesterday.

Activity contracted in December, dragged down by the electronics sector, which makes up around a third of manufacturing.

The electronics industry's purchasing managers' index (PMI) - a gauge of anticipated factory orders - fell sharply from 47.4 in November to 46.6 last month. That, in turn, pulled down the overall manufacturing PMI from 48.8 in November to 48.6 in December.

A reading above 50 signals expansion while one below 50 indicates contraction.

Flash estimates on gross domestic product (GDP) growth in the fourth quarter from the Government this week pointed to the country dodging a recession, but the PMI numbers mean it is still a possibility, say economists.

OCBC economist Selena Ling said the December PMI data is usually an indicator of how the manufacturing sector will fare in January and February, so the outlook for the first quarter of this year now looks "tepid". She added that she "would not discount the possibility" that the GDP figures for the fourth quarter of last year will be revised lower.

If that happens, Singapore could end up with either minimal growth from the third quarter to the fourth, or even a technical recession, which is two quarterly GDP declines in a row, Ling said.

The lacklustre December PMI reading here stands in stark contrast to those in Asian manufacturing powerhouses.

South Korea's PMI was at 48.2 in November but rallied to 50.1 in December, while Taiwan's factory activity shot up from 47.4 in November to 50.6 last month. China's official factory PMI held steady at 50.6 from November to December.

But the unofficial China PMI compiled by HSBC, which gathers more data from smaller privately held firms rather than big state-owned enterprises, rose to 51.5 last month, its highest since May 2011.

All eyes here will now be on the official growth figures for the fourth quarter, due out next month.

Flash estimates released by the Ministry of Trade and Industry on Wednesday indicated that Singapore narrowly avoided a technical recession in the final three months of 2012. Fourth-quarter growth last year was 1.8 per cent compared with the three months before, surprising many economists, who were expecting a contraction.

Economists pointed out that the expansion occurred largely because the growth numbers were revised down in previous quarters, which made the fourth-quarter numbers look better by comparison.

Credit Suisse economist Michael Wan said the manufacturing sector, which makes up nearly a quarter of Singapore's economy, has already had its own technical recession, with manufacturing GDP shrinking for three straight quarters.

"We expect the weakness in the manufacturing sector to persist, although there might be some support from the marine and offshore industry and biomedical production," he said.

Barclays Capital economist Joey Chew added that Singapore's factory activity could see a "gradual turnaround" in the first half of this year against an improving global backdrop.

"For Singapore's tech industry to come back to life, we will probably need investment globally to also pick up, which it has not," she said.

But that pick-up could happen if corporate capital expenditure in the United States recovers, which could occur in the second quarter of this year, she added.


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