Strong AI demand lifts business outlook as Singapore manufacturers grow more optimistic about next six months

Despite geopolitical developments continuing to add uncertainty to the global economy, Singapore manufacturers are more optimistic about business prospects over the next six months as global demand related to artificial intelligence remains strong.

Senior Economist at DBS Han Teng Chua said in an interview that although AI-related stocks have seen considerable volatility recently amid market doubts over the sustainability of AI capital expenditure, demand for products from Singapore manufacturers in related sectors is expected to remain robust, supported by strong export orders. However, limited capacity could remain a major challenge for firms seeking to expand production.

According to the quarterly manufacturing business outlook report released by the Singapore Economic Development Board (EDB) on Monday (2 November), 29% of manufacturers expect business conditions to improve between October this year and March 2027, while 5% expect conditions to weaken. All figures are weighted.

Optimistic firms therefore outnumbered pessimistic ones by 24 percentage points, a marked increase from the 12-percentage-point margin in the previous survey.

By industry, the precision engineering cluster remains the most optimistic about the next six months, supported by investment growth in semiconductors and AI. Optimistic firms outnumbered pessimistic ones by 48 percentage points. The electronics industry's outlook is also highly positive, driven by the development of AI applications and strong demand for semiconductors.

Chua said: “AI capital expenditure is likely to remain strong for the rest of the year, as indicated by recent earnings reports from major US hyperscalers.”

The chemicals industry, however, remains relatively pessimistic, with firms expecting a weaker outlook outnumbering optimistic ones by 13 percentage points. Firms in the petroleum segment remain concerned about persistent uncertainty in crude oil feedstock supply.

Chief Economist and Head of OCBC Group Research, Selena Ling, believes disruptions to crude oil feedstock supply could persist as the Middle East conflict continues and the impasse over the Strait of Hormuz remains unresolved.

Biomedical manufacturing, general manufacturing and transport manufacturing are also broadly optimistic about business prospects over the next six months, although optimism is relatively subdued in transport manufacturing.

Looking ahead to the fourth quarter of this year, 34% of Singapore manufacturing firms expect output to rise from the previous quarter.

Electronics and precision engineering manufacturers expect higher output, supported by robust demand related to AI data centres, semiconductor equipment, data storage and precision components.

Manufacturers in the biomedical manufacturing cluster expect output of active pharmaceutical ingredients (APIs) and life science instruments to increase.

However, in the transport engineering cluster, output of oil and gas field equipment in the marine and offshore engineering segment could fall amid uncertainty over orders.

Meanwhile, 23% of firms expect challenges in securing export orders in the fourth quarter, mainly because of price competition from overseas rivals and political and economic conditions abroad.

The survey was conducted between September and October this year, with 83% of the 397 manufacturers surveyed responding.

A services sector outlook report released by the Singapore Department of Statistics on the same day showed that 21% of firms were optimistic about business prospects between October this year and March next year, while 6% were pessimistic. Optimistic firms outnumbered pessimistic ones by 15 percentage points, up from 13 percentage points in the previous survey.

Wholesale trade firms had the most positive business outlook, mainly because of strong market demand for AI-related computing infrastructure, servers and data storage solutions.

Retail, accommodation, transport and storage firms are also optimistic about business prospects, supported by the upcoming festive periods like Christmas, the New Year holiday and Chinese New Year over the next six months, as well as seasonal factors such as rising year-end travel demand.

Finance and insurance firms also expect continued wealth inflows and robust demand for a range of financial products, underpinning their positive near-term business outlook.

Ling noted that business sentiment are broadly optimistic across the services sector. Notably, industries that had previously lagged, including real estate, administrative and support services, and food and beverage services, are now also showing positive signs.