Singapore’s manufacturing sector continued its expansion streak in July, marking the 12th consecutive month of growth amid strong demand driven by artificial intelligence (AI) developments. The country’s purchasing managers’ index (PMI) rose slightly to 51.4 points in July from 51.3 in June, indicating ongoing industry growth as readings above 50 signify expansion.

Despite the positive momentum, the sector is grappling with supply chain disruptions triggered by renewed tensions in the Middle East. The supplier deliveries index contracted further to 47.8 points in July, down from 48.3 in June, marking the seventh straight month of decline. This trend reflects prolonged lead times and increased challenges in securing timely shipments.

Stephen Poh, executive director at the Singapore Institute of Purchasing and Materials Management, attributed the supply chain disruptions to the breakdown of a ceasefire in the Middle East, which intensified conflict over the Strait of Hormuz. This strategic shipping route, critical for global oil and gas flows, has experienced renewed clashes despite a brief ceasefire agreement signed in June between the United States and Iran. The agreement had aimed to ease tensions and reopen the Strait, but hostilities resumed shortly after. On August 3, US President Donald Trump announced a halt to further strikes and indicated that talks with Iran were set to resume.

Economists noted the ongoing conflict’s impact on global trade and costs. OCBC chief economist Selena Ling described the situation as a persistent risk, highlighting how disruptions affect energy prices, petrochemical feedstocks, logistics, and insurance premiums. UOB associate economist Jester Koh pointed out that the longer delivery times partly result from cargo rerouting away from the Suez Canal and Bab el-Mandeb Strait toward the longer Cape of Good Hope route. Rising energy prices, including Brent crude oil and marine fuels, also contributed to increasing input costs.

Within the manufacturing sector, the electronics segment, which makes up about 40 percent of Singapore’s output, posted solid gains. Its PMI rose to 52.4 in July, the 14th straight month of expansion, supported by stronger new orders, exports, production, input purchases, and employment. However, supply chain delays intensified, causing a sharper contraction in the supplier deliveries index for the electronics sector. Inventories continued to decline, as indicated by the finished goods index dropping to 49.3, suggesting that firms are actively drawing down stock to meet surging demand.

Ling observed that supply constraints, rather than weakening demand, are shaping current market conditions. She noted robust revenue growth reported by several US companies investing heavily in AI infrastructure and high-performance computing, driving strong demand for high-bandwidth memory chips and dynamic random access memory chips. The four largest US hyperscalers — Amazon, Alphabet, Microsoft, and Meta — are expected to invest over US$700 billion in AI-related projects in 2026, supporting an extensive build-out of AI technology infrastructure.

Koh echoed these views, attributing the strong electronics PMI performance to sustained AI-driven demand and significant capital expenditure planned by major technology firms through 2027. He cautioned, however, that the continued growth of electronics manufacturing will depend on companies’ ability to expand production capacity amid supply constraints.

Singapore also faces trade challenges from a new 12.5 percent tariff imposed by the United States on various economies, including Singapore. Ling suggested the impact would be limited since semiconductors, a key growth driver, are not affected by the tariff. She forecast that manufacturing momentum would persist into the third quarter of 2026 and that overall sector growth would remain resilient throughout the year, driven mainly by supply-side constraints rather than demand weaknesses.

The PMI’s future business index stayed above 50, reinforcing manufacturers’ confidence in continued sector growth despite ongoing geopolitical and supply chain pressures.