Firms decided to slow down input buying growth despite signs of higher demand.
The latest Nikkei Singapore Purchasing Managers' Index (PMI) showed a steady improvement in the health of Singapore's private sector despite the slower pace of expansion at 52 in December.
Coming from a 52.8 reading in the previous month, the index still signalled a further improvement in the business conditions of Singaporean private sector companies. However, firms in Singapore decided to slow down growth of input buying at the end of 2016 despite signs of higher demand.
"While still on the rise, purchasing activity decelerated from November, with the rate of increase only fractional overall. A number of panellists pointed towards sufficient stocks as the reason for slower acquisitions of purchased items," a release from IHS Markit said.
Slower purchases of inputs also partially weighed on the levels of pre-production inventories, the firm said.
"The rate of stock depletion in December was the second sharpest in 2016, although there was evidence that the drawdown was largely due to demand outstripping supply," IHS Markit noted.
Meanwhile, better delivery times were reported for the fourth month in a row. A combination of slower purchasing activity and shorter turnaround times helped improved vendor performance.
IHS Markit economist Bernard Aw commented on the improvement of PMI and said signs of rising external demand saw foreign appetite for Singaporean goods and services increase further in December.
"At the same time, pre-production stocks were depleted at a strong rate as demand outstripped supply, based on anecdotal evidence. The rate of job creation also accelerated to a survey high, though increased employment of part-time staff remained the key reason for stronger job growth," he said.
Aw furthered, “Meanwhile, what was also significant was the sharp increase in output charges amid rising costs. If this continues, we may see greater inflationary pressures in the coming months. Although as a whole, we could see business conditions in Singapore strengthen further in 2017, if the trend of improving global demand is sustained.”
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