Singapore factory activity stays in contraction for second month on global trade uncertainty

Straits Times

2 days ago

The purchasing managers' index edged up 0.1 point from April to post a slower contraction reading at 49.7 points. PHOTO: ST FILE
Singapore factory activity stays in contraction for second month on global trade uncertainty
SINGAPORE – Manufacturing activity in Singapore shrank again in May, although at a slower pace than the month before, as US President Donald Trump's tariffs continued to threaten the global economic outlook, despite a de-escalation in the US-China trade war.
The purchasing managers' index (PMI), a barometer of the manufacturing sector's health, edged up 0.1 point from April to post a slower contraction reading at 49.7 points.
Readings above 50 indicate growth, while those below point to contraction.
This is the second contraction reading for the overall manufacturing sector, after having recorded 19 months of expansion, said the Singapore Institute of Purchasing and Materials Management (SIPMM), which issued the report on June 2.
Before falling into contraction in April, the last time the manufacturing PMI reading was below 50 was in August 2023 when it stood at 49.9 points, SIPMM data showed.
Mr Stephen Poh, SIPMM's executive director, said the slower contraction reading in May could be a result of thawing US-China trade tensions, with the world's two largest economies slashing their tariffs substantially.
'However, global uncertainty remains despite the temporary suspension of tariffs,' he said.
Under an agreement reached on May 12, the US slashed tariffs on China from 145 per cent to 30 per cent, while Beijing's retaliatory levies on US goods were lowered to 10 per cent from 125 per cent.
The tariff reprieve is meant to last 90 days, during which time negotiators hope to secure a longer-term agreement.
However, on May 30, President Trump accused China of violating terms of the truce on tariffs, a claim China has responded to with its own accusations of US wrongdoing.
Said Mr Poh: 'Amid the geopolitical fragmentation, supply chain disruptions are becoming more frequent and less predictable.'
Still, the latest PMI reading reflects slower contractions in key sub-indexes such as new orders, factory output and employment and faster expansions of input purchases and imports.
Input prices, finished goods and order backlog also contracted at a slower pace, while the future business index shrank at a faster pace compared with April.
The PMI for the electronics sector – which accounts for about 40 per cent of Singapore's manufacturing output – edged up 0.1 point in May from the previous month to post a slower contraction at 49.9 points.
Before the 1.1-point drop in April, the sector had expanded for 17 straight months.
This latest reading for the sector was helped by faster expansion in new orders, input purchases and imports.
Also, the new exports index reverted to an expansion and factory output shrank at a slower pace.
However, employment in electronics contracted in May at a faster pace, and indexes of finished goods, supplier deliveries, factory output and order backlog recorded slower expansion readings.
DBS Bank senior economist Chua Han Teng said US tariff uncertainties and global trade frictions, despite the temporary suspension of US reciprocal tariffs, are negative for Singapore's external demand prospects, and will likely weigh on new export orders and factory production, particularly in the second half of 2025.
'Singapore's export-oriented factories remain vulnerable to the US tariff roller coaster,' he said.
The Republic's latest PMI reading comes on the back of shrinking factory activity in May across much of Asia.
Soft domestic demand in China and the impact of US tariffs took a heavy toll on manufacturing companies, private surveys showed on June 2.
Trade-reliant Japan and South Korea continued to see manufacturing activity contract in May as President Trump's car tariffs clouded the outlook for exports.
Adding to the gloom, an official survey on May 31 showed China's manufacturing activity shrank in May for a second month in a sign of weakness in the world's second-largest economy.
Ms Xiaoqing Pi , Greater China economist at Merrill Lynch, said: 'While the US-China trade truce boosted sentiment, the recovery in growth momentum is far from solid, with domestic demand remaining weak.'
Vietnam, Indonesia and Taiwan also saw factory activity shrink in May, private surveys showed.
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