Singapore factory activity expands for seventh straight month but outlook clouded by Iran conflict

SINGAPORE - Singapore’s manufacturing activity saw a seventh straight month of expansion in February, but companies will have to brace themselves for more downside risks due to the widening military conflict in the Middle East.

The purchasing managers’ index (PMI) – a barometer of the manufacturing industry’s health – edged up 0.1 point from the previous month to 50.6, on stronger expansions in new orders, new exports and employment.

A reading above 50 indicates growth, while one below 50 indicates contraction.

The electronics sector, which accounts for 40 per cent of manufacturing output, recorded a PMI of 51.3 points, marking its ninth consecutive month of growth, according to data from the Singapore Institute of Purchasing and Materials Management (SIPMM) on March 2.

“The latest PMI readings indicate a resilient outlook for the manufacturing sector, supported by sustained demand from the electronics and semiconductor cluster,” said Mr Stephen Poh, executive director at SIPMM.

He added: “However, escalating military tensions between the United States and Iran have heightened global geopolitical risks and driven oil prices higher, amid concerns over potential supply disruptions, particularly around the Strait of Hormuz, a critical global oil transit route.”

The employment index recorded its sixth consecutive month of expansion, while the future business index remained in expansion territory for the fourth straight month, reflecting sustaining business optimism.

In contrast, the supplier deliveries index contracted for the fourth consecutive month, indicating longer delivery lead times.

This, combined with faster expansions in input prices, order backlog and future business gauges, suggests that supply side conditions are not keeping pace with the growing demand, said OCBC Bank chief economist Selena Ling.

Supply side constraints may well be further at risk given the weekend news about the Iranian conflict, with spillover impact on the broader Middle East region and particularly the effective closure of the key Strait of Hormuz, which caused oil prices to spike and reignited market fears of stagflation, said Ms Ling.

The closure of the Strait of Hormuz, which handles about one-fifth of the global energy trade, saw Brent crude oil rallying above US$82 per barrel on March 2, the highest since January 2025, said Ms Ling.

Maybank senior economist Chua Hak Bin said: “The positive PMI suggests that the momentum from the AI capex boom is carrying over into early 2026,” referring to the billions companies are spending on artificial intelligence. But looking at the Iran conflict, he added: “Higher logistics costs and supply disruptions might dampen the near-term manufacturing momentum in the coming months.”

DBS Bank senior economist Chua Han Teng noted that the gap between strong electronics manufacturing and non-technology factory clusters continued across areas like export orders, production, inventory and backlogs.

“This highlights the continued optimism among Singapore’s electronics firms, with electronics growth likely to remain a key pillar of support for the overall manufacturing sector, underpinned by sustained global AI-related tailwinds and demand for the city-state’s memory chips and server products,” said Mr Chua.

Ms Ling said: “Our manufacturing growth forecast for the first quarter of 2026 is 6 per cent year on year, which is a deceleration from the 18.8 per cent in the last quarter of 2025.” She added that this may be subject to some downside risks if the Middle East situation does not improve.