SINGAPORE – Strong artificial intelligence related demand drove Singapore’s factory activity to expand in September for the 14th consecutive month, even as the persisting conflict in the Middle East places pressure on supply chains.
The Republic’s purchasing managers’ index (PMI) – a barometer of the manufacturing industry’s overall health – rose to 51.7 points in September, from 51.5 points in August. This was its highest reading since October 2018.
A PMI reading above 50 indicates growth, while one below that signals contraction.
The electronics sector, which accounts for 40% of Singapore’s manufacturing output, posted a PMI of 52.9 points in its 16th straight month of expansion.
DBS Bank senior economist Chua Han Teng told The Straits Times: “Strength in Singapore’s manufacturing sector continued to be driven primarily by the electronics cluster, supercharged by sustained global AI-related tailwinds”.
Stephen Poh, executive director at the Singapore Institute of Purchasing and Materials Management, which compiles the monthly survey, said the electronics sector has supported stronger orders, production and employment in the manufacturing industry.
But Poh also said that rising input costs and prolonged supplier lead times were intensifying operational pressures on manufacturers.
“Growing order backlogs and declining finished goods inventories suggest that manufacturers are working to meet demand while managing persistent supply constraints,” he added.
Stronger growth in new orders, new exports, factory output, input inventories and employment drove September’s PMI higher.
Even so, the supplier deliveries index contracted at a faster pace for the ninth consecutive month. This came as the order backlog index recorded stronger growth, and the finished goods index contracted at a faster rate.
NUS associate professor of analytics and operations Goh Puay Guan said the strong PMI readings were in line with the continued growth of AI and electronics, the recent turnaround in China’s PMI, and strong US economic growth.
He said: “Taken together, the continued reduction in the finished goods index probably indicates that demand remains strong, rather than constrained by supply chain disruptions.”
China’s official PMI returned to expansion territory in September after two straight months of contraction. Meanwhile, robust consumer spending and AI-related business investment drove the US economy to grow at a 2.2% annualised rate in the second quarter, according to the latest official estimate.
Here, the future business index expanded for the 11th consecutive month, showing manufacturers’ sustained confidence in near-term business conditions.
Chua said manufacturing growth in South Korea and Taiwan, key players in the global semiconductor supply chain, has indirectly benefited Singapore, which has close trade linkages with the two economies.
South Korea, home to leading memory-chip makers Samsung Electronics and SK Hynix, saw factory activity grow in September by the biggest margin in four months, as demand for its exports grew at the fastest pace in 15.5 years.
Taiwan, where chip giant TSMC is headquartered, also saw its manufacturing activity expand because of robust demand for chips and AI-related goods.
Chua noted that some sectors within Singapore’s manufacturing industry continue to face difficulties from rising energy and material costs, and supply chain disruptions.
He said: “The constraints faced by petrochemical firms are well known, given the feedstock shortages arising from the persistent closure of the Strait of Hormuz, amid the unresolved conflict in the Middle East.”
Priyanka Kishore from consultancy Asia Decoded said energy supply disruptions stemming from the Iran war have taken time to be felt through supply chains.
“But increasing delays in supplies and rising input prices suggest that constraints are beginning to bite, pointing towards a manufacturing slowdown in the fourth quarter,” she said.
