Singapore could face challenges in sustaining its economic revival spurred by strong global demand for electronic products and semiconductors in 2021, according to industry analysts.
The city-state saw its economy expand by 7.2% in 2021, rebounding from a pandemic-induced 5.4 contraction in 2020. The growth rate was at its fastest in over more than a decade. However, some economists have warned that the manufacturing-led momentum may have already peaked and is showing signs of slowing down.
According to Asia Times, the electronics industry is currently the largest manufacturing sub-sector in Singapore, contributing 8% to the country's annual gross domestic product (GDP). The manufacturing industry as a whole accounts for about 21% of GDP and 450,000 workers, making it one of Singapore's largest employers.
As electronics manufacturers around the world are experiencing an increase in their operational costs, China's strict "zero-COVID" policy is slowing down domestic demand for electronic products and affecting its trading partners, including Singapore.
According to DBS Bank, although China was a key driver of Singapore's export recovery in 2021, it could become a threat to the country's economic growth in the next 6-12 months.
Nevertheless, Singapore-based semiconductor companies have continued to expand operations.
In fact, Singapore is transforming into one of the most important semiconductor manufacturing hubs in Southeast Asia. It accounts for nearly 5% of the world's wafer fabrication capacity and has a 19% share of the global semiconductor equipment market. The country also has 21 wafer fabrication plants operated by major global IC companies and serves as a production base for Micron, NXP, and SSMC.
In June 2021, GlobalFoundries announced plans to invest US$4 billion in a new semiconductor factory in Singapore that will increase its annual capacity by 450,000 wafers. In October, Germany-based Siltronic invested US$2.2 billion in its Singapore-based operations, which will create 600 jobs and make Singapore one of the largest suppliers of high-end silicon substrates in the world. Both France-based Soitec and Germany-based Infineon have announced plans to scale up their operations in the city-state as well.
