SINGAPORE – Lifted by artificial intelligence demand, Singapore’s factory activity expanded in August for the 13th consecutive month, reaching its highest level in nearly eight years.
This is despite US and Iran peace talks remaining at a standstill, with negotiators yet to restore normal traffic in the Strait of Hormuz waterway, through which around a fifth of the world’s oil and natural gas supplies are usually transported.
The Republic’s purchasing managers’ index (PMI) – a barometer of the manufacturing industry’s overall health – rose to 51.5 points in August, from 51.4 points in July. This was its highest reading since November 2018.
A purchasing managers’ index reading above 50 indicates growth, while one below that signals contraction.
The electronics sector, which accounts for 40 per cent of Singapore’s manufacturing output, recorded a PMI of 52.6 points in its 15th straight month of expansion.
“The latest PMI readings indicate that Singapore’s manufacturing sector remains turbocharged by the AI-driven semiconductor super-cycle, driving record order backlogs and robust employment,” said Stephen Poh, executive director at the Singapore Institute of Purchasing and Materials Management, which compiles the monthly survey.
The survey released on Sept 2 noted that the manufacturing sector also posted stronger growth in new orders, new exports, factory output and input purchases.
Surging purchases of hardware powering artificial intelligence also drove regional factory activity.
Private surveys in China, Japan and South Korea showed that factory activity expanded in August on a solid demand for chips, computers and other AI-related products, offsetting cost pressures stemming from the conflict in the Middle East.
Over in Japan, new business grew at the fastest pace since January 2018 on the strong demand for semiconductors and AI-related products.
But Poh said Singapore’s manufacturing industry continues to be weighed by supply chain disruptions, which have surfaced because of the war.
He said: “The deepening Middle East supply chain crisis continues to severely cripple supplier delivery times and send input prices, particularly energy costs, soaring.”
The supplier deliveries index contracted for the eighth consecutive month and at a faster pace, reflecting severely prolonged lead times and escalating global supply chain constraints.
The indexes of input prices and order backlogs recorded growth, while the finished goods index contracted at a faster rate.
UOB associate economist Jester Koh said lead times have grown because some cargo shipments were likely taking a longer route around the Cape of Good Hope in South Africa to avoid the Strait of Hormuz.
He noted that the input price sub-index for both the overall and electronics PMI rose, reflecting the surge in energy prices in August.
“The increase was more pronounced in the latter, likely reflecting ‘techflation’ pressures associated with the global chip shortage,” he said.
DBS senior economist Chua Han Teng said higher energy prices have continued to pose challenges for energy-intensive manufacturers, as seen in the continued contraction in the supplier deliveries sub-index.
The chemical and general manufacturing clusters face a comparatively weaker outlook than other manufacturers, he said.
Despite this, the future business index expanded for the 10th straight month, reflecting the continued confidence of manufacturers in operating conditions.
Chua expects the electronics sector to remain the primary driver of overall manufacturing activity because of its continued outperformance.
He said: “Strong external demand for Singapore’s electronics goods continues to be supercharged by substantial AI infrastructure investment, particularly by major US hyperscalers, although with supply constraints.
“These dynamics were observed in continued inventory drawdown, as reflected by the fourth consecutive month of contraction in the electronics finished goods sub-index, at a time when new export orders and order backlogs continued to expand.”
OCBC Bank chief economist Selena Ling pointed to the latest Monetary Authority of Singapore quarterly survey of professional forecasters, also released on Sept 2, which showed an upgrade in the manufacturing growth forecast from 5 per cent to 8.4 per cent in 2026.
She maintained a slightly higher forecast of around 9 per cent.
“While a moderation in the growth pace may materialise in the remaining months, we do not anticipate a sharp correction at this juncture,” Ling said.
