Singapore Reports Weak PMI

By Win Thin

Singapore's purchasing managers' index (PMI) came in weaker than expected in August at 49.4, vs. 52.2 in July, signaling contraction in the city-state's manufacturing sector.

This will feed into worries that global growth is still slowing, even though the macroeconomic outlook for Asia remains the strongest among the emerging-market regions.

The headline PMI fell below the 50 boom/bust line for the first time since April 2009. Looking at the PMI components, new orders fell to 48.8 from 52.0, new export orders fell to 49.3 from 51.8, and production fell to 48.1 from 53.8.

Given Singapore's position as a regional bellwether, markets may get more concerned about the Asian economic outlook as forward-looking indicators seem to point to a weaker second half.

The Monetary Authority of Singapore holds its semiannual policy meeting in October, and given the slowdown seen in the data, we think it is likely to remain on hold then despite higher inflation.

Because it has the strongest fundamentals in the region, the Singapore dollar (SGD) remains the second-best performer in Asia quarter-to-date, up 3.9% vs. the dollar (USD) and behind only the Thai baht (THB), which is up 4.1% so far this quarter. We think SGD should continue to outperform during this ongoing period of heightened uncertainty. The USD/SGD currency pair tested its all-time low from July 2008 at around 1.3450 earlier today, and appears on track to make new lows if sentiment remains positive.

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