SG's June industrial production moderates, while AI-driven manufacturing momentum remains intact

• June industrial production growth moderated to 7.2% year-on-year following an exceptionally strong May, while the AI-driven manufacturing upcycle remained firmly intact.

• Electronics and precision engineering continued to deliver double-digit growth, lifting first-half industrial production by 9.9%, or 14.0% excluding biomedical manufacturing.

• Global memory shortages remain acute, with Micron's 2026 HBM supply already sold out and AI data centres consuming around 70% of global memory output.

• Capacity expansion by UMC, Micron and VSMC between 2026 and 2028 provides a visible pipeline to support manufacturing growth well beyond this year.

• We maintain our positive view on Singapore, supported by resilient manufacturing activity, record non-oil domestic exports, sustained PMI expansion, and stronger-than-expected second-quarter GDP growth.

Headline growth moderates, while technology-related manufacturing momentum remains robust

Singapore's manufacturing output rose 7.2% year on year in June 2026, easing from May's upwardly revised 17.8% increase and marking the slowest pace of expansion in three months. Excluding the inherently volatile biomedical manufacturing cluster, output grew a stronger 9.6%. On a seasonally adjusted month-on-month basis, industrial production declined 7.2%, partially reversing May's 6.9% increase after two consecutive months of exceptionally strong gains.

Table 1: Growth moderated from an exceptionally strong May base, while electronics and precision engineering remained key growth drivers

Industry Cluster	Apr-26	May-26	Jun-26	Cum 1H26
Electronics	31.3	49.2	21.3	29.2
Precision Engineering	15.7	30.5	14.9	13.5
Transport Engineering	10.8	-4.9	4.6	5.6
General Manufacturing	17.4	1.4	-6.8	2.2
Biomedical Manufacturing	-16.3	-24.7	-11.4	-20.8
Chemicals	-17.6	-11.4	-11.7	-9.6
Total Manufacturing Growth	12.8	17.8	7.2	9.9
Manufacturing Growth excl. Biomedical	16.2	23.2	9.6	14
Source: Singapore EDB, iFAST Compilations. Year-on-year growth (%). Data as of 27 July 2026.

Technology-related manufacturing remained the primary growth driver. Electronics and precision engineering expanded 21.3% and 14.9% respectively, continuing to post double-digit growth despite a demanding comparison after electronics output surged 49.2% in May on strong AI server production.

By contrast, the weakness remained concentrated in the biomedical and chemicals clusters. Chemicals output declined 11.7% owing to feedstock supply disruptions in the petroleum and petrochemical segments, while biomedical manufacturing fell 11.4% because of changes in the mix of active pharmaceutical ingredients produced.

Electronics output continued to rise on a three-month moving-average basis, reinforcing the view that the AI-driven semiconductor upcycle remains intact despite month-to-month volatility. This is further supported by cumulative industrial production growth of 9.9% in the first half of 2026, or 14.0% excluding biomedical manufacturing, well above the sector's historical trend. Against this backdrop, June's softer headline appears to reflect normalisation following an exceptionally strong May, rather than a deterioration in underlying manufacturing momentum.

Demand continues to outpace supply, supporting a constructive outlook

More importantly, the moderation in June's industrial production does not reflect weaker demand. Singapore's manufacturing sector remains heavily concentrated in memory chips and integrated circuits—segments that continue to face acute global supply shortages amid the AI infrastructure build-out. According to TrendForce, conventional DRAM contract prices rose 58% to 63% quarter-on-quarter in the second quarter of 2026, while NAND prices increased 70% to 75% as manufacturers redirected production capacity towards high-bandwidth memory (HBM) for AI servers. Micron has already sold out its entire HBM supply for 2026, while SK Hynix's chief executive stated in July that supply shortages could persist beyond 2030, with AI data centres now consuming an estimated 70% of global memory output. Taken together, these developments suggest that production capacity is currently a greater constraint on manufacturing output than underlying demand.

Fortunately, additional capacity is beginning to come online. UMC's new 22nm fabrication plant entered volume production in 2026, lifting Singapore's annual wafer manufacturing capacity to more than one million, while Micron's HBM advanced packaging facility is also ramping up production this year. Looking further ahead, VSMC's USD 7.8 billion 300mm wafer fabrication plant is scheduled to commence production in 2027 before scaling to 55,000 wafers per month by 2029. Micron's USD 24 billion NAND fabrication facility is also expected to begin wafer production in the second half of 2028. Together, these investments provide a visible pipeline of capacity expansion that should support Singapore's manufacturing output well beyond 2026.

The broader macroeconomic outlook remains supportive. In its July monetary policy statement, the Monetary Authority of Singapore (MAS) said the economy is expected to continue expanding at a firm pace in the second half of 2026, supported by sustained global AI-related capital expenditure and resilient activity across technology-related industries. While the Economic Development Board has maintained its 2026 industrial production growth forecast at 4%, the strong performance in the first half of the year raises the likelihood of an upward revision should manufacturing momentum remain firm over the coming months.

The principal risk to this outlook stems from the sector's increasing reliance on electronics. A sharper-than-expected slowdown in global AI infrastructure investment would weigh directly on Singapore's manufacturing output, while continued weakness in the inherently volatile biomedical and chemicals clusters could remain a drag on headline industrial production during the second half of the year.

Positive view on Singapore maintained

June's moderation in industrial production does not materially change our assessment of Singapore's manufacturing outlook. Together with record non-oil domestic exports, an eleventh consecutive month of manufacturing PMI expansion, and stronger-than-expected second-quarter GDP growth, the latest data continue to point to an economy supported by structural demand rather than a short-lived cyclical rebound.

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We therefore maintain our positive view on Singapore. For investors seeking diversified exposure to Singapore equities, we continue to recommend positioning through the Amova Singapore STI ETF (SGX: G3B) for broad, low-cost exposure, and the iFAST-Amova Singapore Equity A SGD for investors seeking higher SMID-cap exposure beyond the STI 30 blue chips.

Declaration

For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) and the analyst who produced this report hold a NIL position in the abovementioned securities.

This research report was prepared with the assistance of artificial intelligence (AI) tools. iFAST Financial Pte Ltd does not rely exclusively on AI for content generation; the content of this report, including all investment theses, ratings, price targets and conclusions, has been independently reviewed and verified by the research analyst(s) to ensure accuracy and professional integrity.