Tech-heavy growth heightens manufacturing risks as AI demand eases: CGS

Electronics growth in July softened to 11.2% from 21.1% in June.

Singapore’s dependence on electronics and precision engineering is increasing its exposure to shifts in the global technology investment cycle, as manufacturing growth slowed to 6.8% in July from 7.5% in June, according to a CGS International report.

Artificial intelligence (AI)-related demand remained supportive but was beginning to normalise from exceptionally strong levels, it said.

Precision engineering output rose 17.7%, up from 14.9% in June, supported by an 18.2% increase in machinery and systems output and a 15% rise in precision modules and components.

Electronics followed at 11.2% growth, easing sharply from 21.1% in June, whilst semiconductor production growth softened to 8% from 20.8%.

The sector’s increasing reliance on electronics and AI-related investment remains a key downside risk should global technology spending slow more sharply than expected, the brokerage added.

Meanwhile, Maybank expects AI spending to continue supporting manufacturing despite the July slowdown. “AI capex boom [is] not over.”

The bank said weaker electronics output was partly offset by stronger growth in precision engineering, transport engineering, and general manufacturing. It maintained its 2026 GDP growth forecast at 5.2%.

Separately, RHB expects the semiconductor upcycle to remain stable on the back of structural demand from digitalisation and AI adoption as global semiconductor sales rose to $512.4b (US$403.3b) in the second quarter of the year.

“We keep our full-year industrial production (IP) forecast unchanged at 9% for 2026,” said Barnabas Gan, Group Chief Economist & Head of Market Research, RHB Bank.

The bank expects IP to grow around 7.8% in the second half, but warned that the outlook depends on sustained AI demand and the external trade environment.

A sharper correction in AI-related markets or slower investment could weaken semiconductor demand, whilst US tariffs and trade uncertainty could put further pressure on Singapore’s export-oriented manufacturers, Gan added.

UOB remained more cautious, citing early signs that AI-related tailwinds may be moderating. “Although we require more data to confirm this assessment.”

“Domestic firms may be facing some capacity constraints,” UOB economist Jester Koh said, noting that new electronics orders continued to outpace production.

Falling stocks of finished goods also suggest manufacturers may be drawing down inventories to meet demand, which could support production later as firms rebuild stocks, the bank added.

$1 = US$0.79

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