Singapore’s economy is expected to remain on a firm growth path for the rest of 2026 as strong global demand for artificial intelligence-related products helps offset higher energy costs and new United States tariffs, the Monetary Authority of Singapore said.
In its latest quarterly macroeconomic review, MAS said technology-related sectors continued to expand faster than expected, supported by demand for memory chips, server infrastructure, consumer electronics and other products linked to the global AI buildout.
The technology segments are expected to contribute the bulk of Singapore’s economic expansion this year, up from about half of growth in 2025.
Singapore’s economy grew 5.7% year-on-year in the second quarter, easing from 6.3% in the preceding three months, according to advance estimates.
MAS now expects the positive output gap to widen to 0.7% of potential gross domestic product in 2026, indicating that economic activity is likely to remain above the economy’s sustainable capacity.
However, the central bank warned that AI-related valuations could prove overly optimistic should company earnings fall short of investor expectations.
It said strong earnings and continued long-term investment by major cloud service providers could nevertheless sustain the AI-driven cycle for some time before its fundamentals are fully tested.
Higher Energy Costs Remain A Risk
MAS said renewed conflict in the Middle East had raised concerns over energy supplies, with prices expected to remain above pre-conflict levels.
Although the risk of a severe supply disruption had eased, uncertainty over the durability of the ceasefire was likely to keep a geopolitical premium embedded in energy prices.
Damaged infrastructure could also take time to restore, slowing the recovery of regional production capacity.
The conflict weighed on Singapore’s oil-related sectors in the second quarter, particularly chemicals manufacturing, utilities and the wholesale trade of fuels and chemicals.
Disruptions to global feedstock supplies forced local petroleum refining and petrochemical companies to operate at lower rates, while domestic exports of oil-related products contracted.
Oil-related re-exports, however, rose sharply, particularly to Malaysia and Indonesia, as regional markets sought alternative supplies and Singapore reinforced its role as an oil redistribution hub.
US Tariffs Seen Having Limited Immediate Impact
New US tariffs affecting 60 trading partners took effect on July 24, including a 12.5% levy on Singapore exports.
About one-third of Singapore’s domestic shipments to the US are expected to be affected.
MAS said the impact would be cushioned by Singapore’s diversified export markets and the strong performance of tariff-exempt electronics exports.
However, it warned that US trade policy remained a source of uncertainty, with the possibility of further measures potentially weighing on trade, investment and business confidence.
The review followed MAS’ second consecutive monetary policy tightening on Monday. A stronger Singapore dollar policy stance can help curb imported inflation.
MAS core inflation, which excludes accommodation and private transport costs, is expected to rise from July and remain elevated into early 2027.
Labour Market Expected To Stay Stable
Singapore’s labour market is expected to remain broadly stable this year, supported by firm economic activity.
Resident employment expanded more quickly in the first quarter, driven by stronger hiring in wholesale trade, transportation and storage, as well as domestic services including real estate, retail and food and beverage.
While companies moderated hiring plans following the outbreak of the Middle East conflict, MAS said job growth remained resilient.
Labour demand is expected to remain supported by growth across most sectors in the second half of the year, with resident hiring benefiting from trade-related activities and structural manpower needs in healthcare, social services, public administration and education.
Wage growth is expected to move closer to historical norms, although technology-linked areas such as manufacturing and wholesale trade could record relatively stronger increases.
CNA
