Manufacturing PMI - Set for a rebound? (CIMB)

• June’s PMI not spared from global decline. Singapore’s PMI dipped 0.4 pt to 50.4 in June (-1.7 pts in May), below consensus and our estimates of 50.8 and 51.0 respectively. The Tech PMI was not spared either, shedding 0.5 pt to 50.9 pts, below consensus and our estimates of 51.1 and 52.2 respectively (-1.6 pts in May).

• Orders declined while imports and inventory rose. Reflecting weaker external demand, new orders and new export orders dipped 1.2 pts and 2.1 pts to 49.7 and 49.3 respectively (-3.0 and -2.7 pts in May). Managers, however, decided to restock, with imports and inventory rising 0.3 pt and 1 pt to 51.4 and 51.0 respectively (-2.4 and -2.9 pts in May), in anticipation of stronger orders in 2H11?

• Global PMI points to a slowdown. Supply shocks in 1Q11 had weighed on 2Q11 production. While Singapore was rather well sheltered from Japan’s supply disruptions, global industrial production took a hit. June’s global PMI suggests that manufacturing data will remain soft in June/July as the supply shocks work their way through global production.

• Should be transient; set for a rebound in 2H11? We expect the drags in 1H11 to subside, leading to a rebound in manufacturing in 2H11. With the restoration of the global supply chain as Japan jump-starts its production, global manufacturing should return to gear. The running down of inventory should lead to re-stocking in 2H11. Commodity prices, including those of industrial metals and oil, appear to have peaked while a pick-up in Japan’s production and stronger orders from the US should be supportive of growth.

• We maintain our 2011 manufacturing growth forecast of 8% yoy. However, due to the manufacturing slowdown in 2Q11, Singapore’s advance GDP estimates for that quarter may show slower growth (between -0.5% and +0.5% yoy). But we don’t expect the external shocks to inflict long-lasting damage on private consumption, not unless global business confidence is dented in a major way in the coming months. We maintain our 2011 GDP growth forecast of 5.7%.