The PMI declined to 49.9 in May, falling below 50 for the first time since August 2016, said the Singapore Institute of Purchasing and Materials Management.
The electronics sub-index also dropped to 49.4, its lowest level since June 2016.
A reading of 50 signals the divide between expansion and contraction.
A slowing electronics cycle has lowered the index since 2018 and the outlook is worsening as Donald Trump threatens Mexico with higher tariffs, potentially destabilising the global economy.
Analysts say the risk of a recession is growing.
“Increased trade protectionism is considered the primary downside risk to growth by a majority of respondents, followed by financial market strains and a global growth slowdown,” reported Gregory Daco of Oxford Economics. “Recession risks are perceived to be low in the near term but to rise rapidly in 2020.”
The trade conflict between China and Trump suddenly escalated in May when the tycoon turned populist raised tariffs on hundreds of billions of Chinese imports to 25 per cent from 10 per cent and threatened charges on all Chinese imports.
The PMIs from Malaysia, Taiwan, Japan and South Korea also showed another slump, falling below 50.
PMIs were below expectations in Vietnam and improved slightly in the Philippines.
The expansion in the Philippines reflects healthy domestic demand and less reliance on trade. Vietnam’s growth reflected a diversion of business and trade flows due to Trump’s tariffs, as Chinese employers move activity south of the border into Vietnam to dodge Washington’s new measures.
In China, the major Caixin/Markit Manufacturing PMI showed modest expansion at 50.2.
But the outlook remained gloomy as output growth fell, factory prices stalled and businesses were the least optimistic on production since the surveys began in April 2012.
“The additional shock from the escalated trade tensions is not going to be good for global trade and if demand in the US, China and Europe continues to soften, which is very likely, it will bode ill for Asia as a whole,” Aidan Yao of AXA Investment told the media.
“In terms of the monetary policy response, almost everywhere the race is going to be to the downside.”
US manufacturing is expected to grow steadily, although many market analysts say the global trade strife will eventually feed back into America’s economy.
Whether this will happen in time to affect Trump’s probable attempt to win re-election in 2020 remains to be seen.
Singapore’s manufacturing trouble is symbolic of global problems. Picture credit: Wikimedia