Singapore factory activity expands at a slower pace amid heightened US-Iran conflict

SINGAPORE – Singapore’s manufacturing output expanded at a slower pace in March, with analysts noting that there has been limited impact from the US-Iran war so far.

The electronics sector continues to be a major engine of growth, fuelled by robust global demand for artificial intelligence.

Still, analysts said that there are early signs of disruption from the Middle East conflict, with the latest data reflecting rising energy prices and longer delivery lead times.

The purchasing managers’ index (PMI) – a barometer of the overall manufacturing industry’s health – declined 0.1 point to 50.5, from 50.6 in February.

A PMI reading above 50 indicates growth; a reading below 50 suggests a contraction in output.

The electronics sector, which accounts for 40 per cent of manufacturing output, edged up 0.1 point to a PMI of 51.4 points, signalling a slightly strong pace of expansion and marking the 10th consecutive month of growth for the sector.

“It is encouraging to note that the latest PMI readings continue to reflect a positive outlook for the overall manufacturing sector, despite heightened geopolitical uncertainties arising from the US-Iran conflict,” said Mr Stephen Poh, executive director at the Singapore Institute of Purchasing and Materials Management, which gathers and compiles the monthly survey.

“The electronics sector remains a key driver of expansion, supported by strong global demand for semiconductors, AI hardware and data centre components,” he said.

The employment index recorded its seventh consecutive month of expansion while the supplier deliveries index contracted at a faster rate and for the fifth consecutive month, indicating longer delivery lead times.

Maybank economist Brian Lee said that the March data is encouraging, with the overall manufacturing and electronics PMI remaining firmly in expansionary territory above 50.

UOB associate economist Jester Koh noted that overall PMI, having edged down by 0.1 point, reflects limited impact from the US-Iran war.

And DBS Bank senior economist Chua Han Teng said that the continued expansion in manufacturing PMI in March points to a still-positive outlook.

Downside risks

However, the analysts pointed to early indicators of disruption from the Middle East conflict and warned of downside risks.

Mr Chua said the slight moderation in overall PMI warrants close monitoring, given downside risks stemming from an uncertain external environment, which is due to disruptions linked to the Middle East conflict and lingering US tariff uncertainty.

Mr Koh noted that there are early indications of disruption from the conflict, as seen in the 0.3-point increase in the input prices sub-index and the 0.3-point fall in supplier deliveries.

He said: “The former likely reflects the early effects of the surge in energy prices and prices of other petrochemical feedstocks while the latter portends likely production snags in the coming months.”

Mr Lee said that signs of supply chain frictions are visible in the PMI. “The supplier deliveries index for both overall manufacturing and electronics PMI contracted at a faster rate, pointing to longer delivery lead times.”

Mr Chua said he observed that other regional manufacturers are also seeing initial signs of increasing energy and raw material input cost pressures.

Meanwhile, AI-related tailwinds continue to support the electronics sector, the analysts said.

“With faster expansion in new orders, new exports and factory output, this reinforces our view that the AI capex boom has remained relatively resilient despite geopolitical tensions thus far,” said Mr Lee.

But helium supply shortages arising from the production halt at Qatar’s Ras Laffan facility – which produces roughly 30 per cent of global helium supply – could impact semiconductor production, given helium’s vital role, said Mr Koh.