Why Singapore’s manufacturing story holds

[SINGAPORE] The improvement in Singapore’s purchasing managers’ index (PMI) in May was broad-based.

New orders, export demand, factory output, purchasing activity and employment all accelerated from April, indicating that manufacturing growth is becoming more entrenched rather than relying on a single driver.

The electronics PMI rose to 51.9, extending its expansion streak to 12 consecutive months, as it continued to outperform the broader manufacturing sector.

Electronics accounts for roughly one-third of Singapore’s manufacturing output, and its sustained strength underscores the continued support from artificial intelligence-driven semiconductor demand.

The report also highlighted rising cost pressures. Input costs increased and supplier delivery times lengthened for a fifth consecutive month, as higher energy and logistics expenses linked to the Middle East disruption filtered through supply chains.

However, the impact was not uniform in the sector. Companies focused on specialised products, such as advanced packaging and high-bandwidth memory, benefited from stronger pricing power and greater barriers to entry.

Given Singapore’s concentration in these higher-value semiconductor activities, sector-level margin pressure appears more manageable than the headline cost data initially suggests.

AI capex and Singapore’s place in semiconductor supply chain

The PMI data indicates sustained momentum in Singapore’s manufacturing sector, and recent investment commitments suggest the growth cycle has further to run.

On Jun 9, Applied Materials opened its US$500 million Tampines campus, more than doubling its advanced clean-room capacity in Singapore, with the immediate commencement of volume production.

At the same time, Applied Materials and the Agency for Science, Technology and Research’s Institute of Microelectronics extended their advanced packaging research partnership for another five years, backed by about US$210 million of combined investment.

The collaboration focuses on hybrid bonding and 3D chip integration, two technologies that are becoming increasingly critical, as AI workloads drive demand for more advanced semiconductor packaging.

These commitments reflect a demand backdrop that remains robust.

Global technology companies have earmarked more than US$660 billion for AI-related capital expenditure in 2026, placing Singapore’s electronics and precision-engineering sectors directly within a major investment pipeline.

Micron’s high-bandwidth memory facility is also entering its ramp-up phase this year, providing additional visibility for manufacturing activity.

Together, these developments reinforce a clear trend: Singapore is strengthening its position in the global semiconductor value chain, and the latest wave of investments indicates that this expansion remains firmly under way.

Tariff investigations

The structural growth outlook remains intact, but external risks also warrant attention.

Washington has launched two separate investigations involving Singapore. The first centres on goods allegedly linked to forced labour, and could result in a tariff increase from 10 to 12.5 per cent.

Even then, the proposed measures exempt electronics, pharmaceuticals and energy products – sectors that account for a substantial share of Singapore’s exports. The immediate economic implications therefore appear limited.

The second investigation carries greater significance.

The US is examining whether 16 economies, including Singapore, have contributed to global overcapacity through state-supported industrial policies and excess production.

At first glance, Singapore’s inclusion may seem concerning. Yet, its trade profile differs markedly from the economies that appear to be the primary focus of the investigation.

The investigation is largely aimed at economies that generate sizeable trade surpluses with the US, and are perceived as exerting competitive pressure on American manufacturers.

Singapore falls into neither category. The US runs a trade surplus with the South-east Asian country, meaning American exports to Singapore exceed the Republic’s exports to the US.

Notably, the Office of the United States Trade Representative (USTR) initially overstated the US trade deficit with Singapore by citing a US$27 billion figure.

The claim was inconsistent with the actual trade balance, and was promptly disputed by Singapore’s Ministry of Trade and Industry. The figure has since been removed from the USTR’s documentation.

Singapore has also mounted a coordinated response.

The Singapore Business Federation, representing more than 34,000 companies, has argued that local manufacturers compete on commercial fundamentals rather than state subsidies.

Equally important, the rules governing these proceedings require the US to pursue consultations before imposing tariffs.

The longstanding US-Singapore Free Trade Agreement provides an established framework for such negotiations, reducing the likelihood of abrupt policy action.

At home, Budget 2026 support measures offer an additional buffer, should trade frictions intensify.

The case for Singapore is intact

The temptation – in an environment of persistent trade friction – is to treat every new proceeding as a structural threat.

For Singapore, the more disciplined read is to distinguish between what is being contested and what is compounding.

The tariff proceedings are being contested through formal channels, with a stronger factual footing than most of the economies named in the investigation.

The semiconductor investment cycle, AI-driven demand pipeline and the country’s manufacturing momentum are compounding.

Singapore has navigated external pressures before, by ensuring its structural growth drivers outpace near-term headwinds. The latest evidence suggests it is doing so once again.

The writer is a research analyst with the research and portfolio management team at FSM Global, the B2C division iFast Financial, which is the Singapore subsidiary of iFast