Singapore’s manufacturing outlook improved slightly with the latest Purchasing Managers’ Index (PMI) edging higher by 0.1 point to 49.8 in Jul (from 49.7 in Jun), the second straight month of improvement. Despite the uptick, this was still the 5th straight month of contraction (i.e. sub-50) in overall activity for the manufacturing sector, after a very brief and shallow 50.0 expansion in Feb. Prior to Feb, it recorded five straight months of contraction. Similarly, the electronics sector PMI contracted but by a slower pace of 49.3 in Jul (from 49.0 in Jun), the first improvement in 4 months but still the 12th consecutive contraction. It affirmed that the electronics downcycle remains in place, albeit with some improvement. 

Singapore Manufacturing PMI Outlook – While we are heartened by the second consecutive month of slight improvement seen in the headline PMI, the sub-50 print still correlates with our view that Singapore continues to experience headwinds in the manufacturing sector, as many of the key sub-indices within the PMI remained in contraction territory. And as for the slower contraction in the Jul electronics sector PMI, we remain hesitant to call for a bottom in the current electronics downcycle, but we do note the encouraging signs of demand recovery based on the improving order backlog index for both headline and electronics sector... For Singapore, the Jul S&P Global PMI for the whole economy fell 2.8 points to 51.3 from 54.1 in Jun, its third consecutive month of lower readings despite staying in expansion. This also calls for a more cautious outlook towards the broader economy. 

Thus, in our view, it is too early to call for a manufacturing recovery or a bottom to the electronics sector’s current downcycle cycle yet. And while Singapore has managed to avoid a technical recession in 1H 2023, we think some measures of weakness in manufacturing will linger. We may yet see a few more months of sub-50 PMI prints for headline and electronics sector PMIs before more positive prints emerge in later part of 2H 2023, and we maintain our forecast for Singapore’s 2023 manufacturing to contract by 5.4%