Base effects, AI to help fuel recovery of Singapore’s manufacturing sector: RHB

The sector is weighed down by external headwinds and high interest rates.

Singapore’s manufacturing sector is still in recovery and is expected to post a more meaningful rebound in the coming months thanks to favorable base effects and strong demand from AI, according to RHB. 

RHB associate economist Jester Koh sees the recovery in both the electronics segment and the overall manufacturing output as “challenging” even though their performance turned out better than expected in May. 

Koh said the average industrial production (IP) over the last six months was still down 0.9% YoY last month for the entire manufacturing industry, while electronics only inched up 2% YoY during the same period. He said the soft recovery indicated that the sector continues to be impacted by external headwinds and the elevated global interest rate environment.

Despite this, Koh said they remain optimistic about the recovery prospects for electronics and semiconductors due to supportive base effects in Q2 and Q3. 

There is also strong end demand for these products, driven by the structural boost from generative AI-related applications which has positive spillovers to the consumer segment, he said.

“The anticipated easing of financial conditions as central banks in major advanced economies commence lowering policy rates could provide some tailwinds to global investment and consumption activity towards the latter half of the year,” he added.