Manufacturing forecast lifted to 9% on AI-driven electronics growth

Semiconductor output increased 21.1% YoY in June.

Singapore’s manufacturing growth forecast has been raised to 9% for 2026, supported by strong electronics production and sustained demand for artificial intelligence (AI)-related products, according to RHB.

The revised outlook follows stronger-than-expected manufacturing performance, with industrial production (IP) averaging 9.9% year-on-year (YoY) growth in the first half of 2026. The stronger manufacturing outlook also led to an upgrade in Singapore’s 2026 GDP growth forecast to 4.5% from 4.0%.

Singapore’s IP grew 7.2% YoY in June, slowing from a revised 17.8% YoY increase in May. The result was below the 7.5% YoY forecast, whilst output excluding biomedical manufacturing increased 9.6% YoY.

CGS International also maintained its 2026 IP growth forecast at 8%, citing continued support from AI-related demand. The research firm said Singapore’s Manufacturing and Electronics Purchasing Managers’ Indices (PMIs) remained in expansionary territory in June 2026 at 51.3 and 52.2, respectively, supported by healthy new orders and production activity.

“Whilst manufacturing growth is becoming increasingly concentrated in AI-related industries, we believe continued investment across the semiconductor ecosystem should help offset softer conditions in the more cyclical segments, keeping the overall manufacturing outlook constructive,” CGS noted.

The firm expects electronics and precision engineering to remain key contributors to manufacturing growth in 2026, supported by sustained AI-related capital expenditure and demand for semiconductor components and chipmaking equipment.

RHB similarly highlighted the strength of the electronics cluster, which was the main growth driver in June, expanding 21.3% YoY on sustained demand for AI-related products. The infocomms and consumer electronics segment grew 32.1% YoY, while semiconductor output rose 21.1% YoY.

On a month-on-month seasonally adjusted three-month moving average basis, electronics production increased 2.8%, supported by gains in infocomms and consumer electronics (+3.8%), computer peripherals and data storage (+4.3%), and semiconductors (+3.7%).

RHB said the electronics sector is expected to continue benefiting from the global technology upcycle and AI-driven demand, supporting manufacturing activity and exports in the near term.

“Continued AI-related investments are expected to underpin demand for semiconductors and server-related products, reinforcing Singapore's electronics manufacturing, export performance and industrial production through its role in the regional technology supply chain,” it said.

“We expect the volatile manufacturing clusters to remain a drag on overall industrial production in 2H26 if the weakness in biomedical manufacturing and chemicals persists in the coming months,” RHB added.

Electronics output grew 33.8% YoY in the second quarter of 2026, led by semiconductor production, which increased 35.7%, and infocomm and consumer electronics, which surged 51.8%, as manufacturers ramped up production of AI servers and related products.

The precision engineering cluster also recorded growth, rising 14.9% YoY in June, supported by higher semiconductor equipment production in the machinery and systems segment, which increased 16.6%.

CGS International noted that precision engineering growth slowed in June following strong gains in May, although the continued expansion in machinery and systems reflected ongoing investment in semiconductor production capacity.

Meanwhile, biomedical manufacturing declined 11.4% YoY and chemicals output fell 11.7%. General manufacturing industries contracted 6.8% YoY.

RHB said biomedical manufacturing showed signs of recovery, with output rising 29.2% month-on-month on a seasonally adjusted basis in June, following a 5.1% decline in May, driven by stronger pharmaceuticals and medical technology production.

The firm expects industrial production growth to reach 8.0% in the second half of 2026, supported by continued strength in electronics manufacturing.

However, RHB cautioned that risks remain from geopolitical developments and a potential slowdown in AI investment, which could affect demand for semiconductors, memory chips, and server-related products.

“Any slowdown in AI spending could weaken global demand for semiconductors, memory chips, and server-related products, leading to softer orders for Singapore's electronics sector,” the report noted. “Given Singapore's integral role in the global semiconductor value chain, such a scenario would likely weigh on exports, industrial production, and, more broadly, economic growth.”

CGS International added that geopolitical tensions could weigh on the chemicals cluster through potential supply chain disruptions and higher energy costs.