Impressive July PMIs unsustainable: DBS

There’s no real demand to back it up.

Analysts were caught by surprise by the unexpected uptick in SIngapore’s Purchasing Manager’s Index (PMI) in July. However, DBS warns that it’s too soon to celebrate, as there is no “real demand” to sustain the improvement.

Overall manufacturing PMI rose by one full point to 51.5 while the electronics PMI spiked up by 1.7 pts to 52.4. Most of the sub-indexes such as export orders, production and inventory level from both main indicators were up. This essentially reflects a marked improvement in manufacturers’ sentiments.

According to DBS, manufacturers are ramping up their production probably on account of the stronger GDP data from the US as well as some positive effects of the stimulus package in China, but this does not necessarily reflect a “real” improvement in demand.

“However, the strong showing in the PMIs can only be supported by sustained improvement in real demand. and that will require a marked improvement in global outlook, which currently still remains in question. Moreover, the overhanging restructuring dra is still a concern. MArgin erosion and the inability to compete effectively in the global arena will remain the challenges for manufacturers in the quarters ahead,” noted the report.