Strength Above, Fragility Below

Recent economic data has given markets reason to remain constructive. Growth has held up across major economies, central banks have largely stayed on hold, and corporate activity in several sectors continues to point to expansion rather than contraction.

Headline resilience tells only part of the story. The broader picture is proving less straightforward.

Much of the strength visible in aggregate data is being supported by narrower and potentially less durable drivers. Inventory accumulation, precautionary stockpiling and concentrated demand linked to the global artificial intelligence investment cycle are helping sustain activity even as supply disruptions, rising costs and softer underlying demand begin to emerge elsewhere.

The result is an economy that still appears firm in aggregate, though increasingly dependent on a narrower set of supports.

Growth Remains Positive, Though Less Broadly Based

Recent manufacturing data illustrates this clearly.

In the United States, the S&P Global Manufacturing PMI rose to 54.5 in April, its strongest reading since May 2022. Production and new orders both strengthened, while purchasing activity increased sharply. On the surface, the data points to robust momentum. Much of that improvement, however, appears to reflect businesses bringing forward purchases and building inventory in anticipation of higher input costs and further supply disruption, rather than broad-based end demand. Input and output prices both rose at their fastest pace in ten months. 

China’s manufacturing sector presents a similar pattern. PMI readings remained in expansion in April, supported by export demand tied to artificial intelligence and technology-related supply chains. The broader domestic picture, however, was less convincing. China’s non-manufacturing PMI slipped back into contraction as both services and construction softened, suggesting that resilience continues to rely on a relatively narrow set of growth drivers. 

This distinction matters because growth concentrated in a handful of sectors, or supported by temporary defensive behaviour, is typically less durable than expansion that is broad-based across the economy.

Singapore Reflects the Same Contrast 

Singapore’s latest data presents a similar duality. 

Overall factory activity expanded for a ninth consecutive month in April, with headline PMI rising to 50.7 and the technology-focused PMI reaching an eight-year high. Demand linked to semiconductors and artificial intelligence continues to provide meaningful support, while concerns over future supply disruption have also prompted additional stockpiling. 

The divergence across sectors, however, is becoming more pronounced.

March manufacturing output rose 10.1 percent year-on-year, but much of the increase was driven by semiconductors. Chemicals output, by contrast, fell 16 percent, with petrochemicals down 35.2 percent as feedstock supply disruptions weighed heavily on the sector. 

Singapore’s industrial sector therefore remains resilient in aggregate, though that resilience is increasingly concentrated in areas benefiting from structural technology demand, even as more energy-sensitive industries experience material strain.

Cost Pressures Continue to Build

The same contrast is evident in inflation.

While official inflation data remains relatively contained in many markets, business surveys and company commentary suggest cost pressures are continuing to intensify.

Manufacturers across major economies are reporting higher raw-material, transport and energy costs. Delivery times are lengthening, supply chains remain under strain, and businesses are increasingly signalling that more of those costs will need to be passed through in the months ahead. 

Prime Minister Lawrence Wong recently warned of rising stagflation risks, drawing comparisons to the oil shocks of the 1970s and cautioning that higher fuel and logistics costs could feed through into food, transport and household essentials over time.

The significance of this lies in timing. Inflation often becomes visible in official data only after businesses have exhausted their capacity or willingness to absorb rising costs. By the time that occurs, the pressures are already embedded.

Policy Is Steady Because the Trade-Offs Are Harder

Major central banks held rates steady at their April meetings, including the Federal Reserve, European Central Bank, Bank of England and Bank of Japan. Stability in policy, however, should not be mistaken for confidence that risks are fading. 

A more plausible interpretation is that policymakers are confronting an increasingly difficult balance.

Growth remains sufficiently firm to make easing premature. Inflation risks remain elevated enough to make a more dovish stance difficult to justify. The result is a holding pattern driven less by comfort than by constraint.

That dynamic is particularly evident in the United States, where the Federal Reserve’s latest decision produced its most divided vote in more than three decades, highlighting growing disagreement within the committee over how persistent inflation risks may prove. 

Conclusion

The broader message from the latest data is not one of sharp economic deterioration. It is that the quality of growth is becoming less broad-based.

Headline resilience remains intact. Underneath it, strength is becoming more concentrated, pressures are building in exposed sectors, and inflation risks continue to broaden.

The more relevant question for markets may therefore be not whether growth is holding, but how much of that strength reflects durable momentum rather than temporary support mechanisms.