Analysts split on industrial outlook despite shared 13% IP gain

UOB lifts GDP forecast to 4% whilst RHB flags pharma front-loading risk ahead of US tariff.

Singapore's industrial production grew 13% year-on-year (YoY) in May, slowing from April's 16.5% pace, with analysts at UOB, CGS International and RHB diverging on the outlook for the rest of 2026 even as all three credited AI-driven semiconductor demand for the headline figure.

UOB raised its 2026 GDP growth forecast to 4% from 3.2% previously, saying downside risks to growth have diminished given the strength in industrial production (IP) over April and May. The bank cited an expected easing in Middle East conflict intensity and a gradual resumption of energy flows through the Strait of Hormuz, alongside AI-related tailwinds it expects to persist at least through the third quarter of 2026.

CGS International is more bullish, raising its IP growth forecast 8% from 5% previously, citing AI-led strength and chemicals recovery. It said it expects the improving external environment following the US-Iran peace agreement to gradually provide a tailwind to the chemicals cluster as shipping routes normalise, easing feedstock costs and supporting a petrochemical rebound.

Meanwhile, RHB held its full-year industrial production forecast steady at 7% and struck a more cautious note. The bank noted that its in-house autoregressive model points to a moderation in momentum across both headline and ex-biomedical manufacturing industrial production on a three-month moving average basis.

RHB also flagged a sharp divergence between pharmaceutical production, which fell 41.6% YoY in May, and pharmaceutical exports, which surged 102.6% YoY over the same period, a gap it attributed to possible front-loading of shipments to the US ahead of a proposed 100% tariff on selected patented pharmaceuticals.

The export boost from this front-loading is likely to be short-lived once the tariff takes effect, warning of further softening in biomedical manufacturing into the second half of the year.

RHB also flagged continued weakness in transport engineering and chemicals. It said petrochemicals remained the main drag on chemical production, declining 8.3% on a three-month moving average basis due to feedstock supply disruptions, whilst marine and offshore engineering and aerospace momentum fell 9.6% and 15.4% respectively in May. It predicts a further decline in transport engineering in the coming months.

Despite the diverging outlooks, all three analysts agreed that electronics and precision engineering, powered by AI-related semiconductor demand, were the key supports behind May's headline figure.

RHB pointed out that there is a risk of a reversal in that same driver, warning that a sharp pullback in AI investment could weigh on Singapore's economy via weaker demand for semiconductors and electronics exports, given the country's exposure to the global electronics and electrical cycle.

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