Singapore manufacturing remains under pressure from inflation, external headwinds

Nurluqman Suratman


SINGAPORE (ICIS)–Singapore’s manufacturing sector will continue to face pressure from weak external demand and high inflation, with data in the first month of 2023 indicating a contraction.

The southeast Asian country’s manufacturing Purchasing Managers’ Index (PMI) in January remained below the expansion threshold of 50 although it edged up to 49.8 from 49.7 in December, according to the Singapore Institute of Purchasing and Materials Management (SIPMM) showed on 2 February.

Singapore is a major petrochemicals manufacturer and exporter in southeast Asia. Its petrochemicals hub Jurong Island houses over 100 global chemical firms, including energy majors ExxonMobil and Shell.

The January reading marks the fifth consecutive month of contraction in overall activity for the manufacturing sector, after having expanded for 26 straight months between July 2020 and August 2022.

Most sub-indices in the January 2023 PMI showed improvement, including the new orders index which rose to 49.7 from 49.5, the output index which edged up to 49.8 from 49.6, and the new export index which increased to 49.4 from 49.3.

Price pressures eased at the start of the year, as the January index for input prices moderated to 50.8 from 51.0 in December, indicating a further easing of supply chain disruptions and weaker demand.

The electronics sector PMI remained in contraction territory in January at 49.1, although up from 48.9 in December.

“The small uptick in Jan overall and electronics PMIs was a surprise to us but does not change our negative view for manufacturing in 2023,” said Alvin Liew, senior economist at Singapore-based UOB Global Economics & Markets Research.

“We have also kept our view of weaker external demand and the electronics downcycle remaining in place, which are typically a bad combination for economies which are trade reliant with a significant share of manufacturing related to electronics, such as Singapore, South Korea and Taiwan,” Liew said.

A separate survey of Singapore manufacturers conducted by financial information and analytics firm S&P Global, however, showed that January PMI crossed over to expansion territory at 51.2 from 49.1 in December, as external orders grew “at an above-average rate”.

Price pressures, nonetheless, continued to build for private sector firms in January, it stated.

“Overall input cost inflation inched up to a survey record at the start of 2023, accounted for by record high purchase cost inflation and a strong growth in wages in January,” S&P Global said.

“Firms in the manufacturing sector reported the fastest increase in cost burdens. In turn, higher cost burdens were shared by private sector firms at a quicker rate with clients, the fastest in four months.” it added.

Singapore’s core inflation rate – which excludes private road transport and accommodation costs – averaged in 2022 at 4.1%, higher than the 0.9% recorded in 2021, central bank data showed.

The Monetary Authority of Singapore (MAS) projects a core inflation rate of 3.5-4.5% in 2023, with headline inflation coming in at between 5.5% and 6.5%.

Singapore’s GDP growth is forecast to decelerate to 0.5% to 2.5% in 2023 as major economies in the west appear to be headed toward a recession. In 2022, the economy posted a slower expansion rate of 3.8%, half the growth pace set in 2021.

Focus article by Nurluqman Suratman

Thumbnail image: Singapore’s Tanjong Pagar Port with Sentosa Island in the background on 2 July 2022. (By Joseph Nair/NurPhoto/Shutterstock)

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