Singapore factory activity slips into contraction as tariff fears sink in

SINGAPORE – Manufacturing output here slipped in July after a slight increase in June amid uncertainty over US tariffs.

The purchasing managers’ index (PMI) – a barometer of the sector’s health – dipped from 50 points in June to 49.9 points.

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

Electronics, which accounts for around 40 per cent of Singapore’s manufacturing output, was a modestly bright spot, with its PMI reading edging up from 50.1 to 50.2 from June to July.

Mr Stephen Poh, executive director of the Singapore Institute of Purchasing and Materials Management, which compiles the index, said readings showing electronics in expansion and the broader manufacturing industry in contraction “painted a mixed outlook”.

“Anecdotal evidence suggests that local manufacturers remained concerned about the uncertain global trade policy and tariffs, and many companies have held back their investment and hiring plans,” he added.

The institute compiles PMI data monthly through surveys of logistics, procurement and supply chain managers.

It said the July reading reflects a slower expansion in areas such as new orders and exports and input purchases.

Expansion in finished goods, imports, supplier deliveries and order backlog also slowed, while factory output and employment contracted at a faster pace.

OCBC Bank chief economist Selena Ling noted that the electronics sector has benefited from the demand for artificial intelligence-related investment, even though demand from end consumers has been relatively subdued.

The manufacturing and electronics employment indexes also stayed in contraction for the fourth consecutive month.

This reflects “cautious hiring intentions among factories, due to the high global uncertainty since Liberation Day (tariffs)”, said DBS Bank senior economist Chua Han Teng.

“Labour demand in outward-oriented sectors, particularly those exposed to trade, will likely soften in the coming months.”

A sub-index reflecting manufacturers’ expectations of the business conditions ahead remained in contraction territory in July, although it shrank at a slower pace.

This sentiment was seen in another PMI report also released on Aug 1.

S&P Global data showed that manufacturers were the least optimistic about growth since the pandemic in July 2020, as US President Donald Trump pushes on with his tariffs.

Front-loading – where advance orders are made to prepare for the prospect of higher tariffs – is a concern for manufacturers, Ms Ling said.

“We are probably at an inflection point where reciprocal tariffs are about to kick in, and there are concerns if the front-loading effects will start to subside, with potential implications for external orders and global supply chain recalibration,” she added.

Mr Chua expects weaker demand to weigh on Singapore manufacturers in the months to come.

He said the PMI data showed that “new export orders remained in expansion in July 2025, suggesting supportive external demand for now, but this resilience is likely temporary.

“While the downside direct impact on Singapore would be contained from the unchanged global baseline US tariff rate of 10 per cent, (its) exports and economy will still face indirect negative impact through its trade linkages with key trading partners.”