Singapore manufacturing surge powers 2025 growth to highest since 2021 amid AI boom

SINGAPORE – A manufacturing surge in the final quarter of 2025, driven by demand for pharmaceuticals and AI-related semiconductors, helped the Singapore economy

achieve better-than-expected full-year growth of 4.8 per cent

despite fears over US tariffs.

The economy grew 5.7 per cent year on year in the fourth quarter of 2025, up sharply from the 4.3 per cent expansion in the third quarter, according to advance estimates from the Ministry of Trade and Industry (MTI) on Jan 2.

The 4.8 per cent growth estimate for 2025 was first announced by Prime Minister Lawrence Wong on Dec 31.

It easily beat MTI’s November forecast of around 4 per cent, which was upgraded from its August prediction of 1.5 per cent to 2.5 per cent.

It also tops 2024’s 4.4 per cent and is the fastest pace since 2021 when the economy rebounded from the Covid-19 pandemic with 9.8 per cent growth.

But Singapore’s pace of growth is likely to slow in 2026, say analysts, though their forecasts are generally higher than the Government’s estimate. MTI’s estimate given on Nov 21 is for growth to slow to 1 per cent to 3 per cent in 2026.

PM Wong in his New Year message

also cautioned that the pace of growth will be hard to sustain in the face of trade and geopolitical tensions.

In terms of momentum, MTI’s Jan 2 data actually showed that on a seasonally adjusted quarter-on-quarter basis, economic growth slowed to 1.9 per cent in the fourth quarter of 2025, from 2.4 per cent in the third quarter.

Ms Sheana Yue, senior economist at Britain-based research house Oxford Economics, said: “Today’s data release rounds up a resilient 2025 for Singapore’s economy, which has benefited from robust external demand. However, conditions are expected to become less favourable in 2026.”

Singapore’s manufacturing resilience in 2025 has been underpinned by three factors: the boom in demand for AI-related chips and other electronic products; the fact that US President Donald Trump’s reciprocal tariffs kicked in later and at much lower rates than feared; and the delay in the implementation of US tariffs on pharmaceuticals and semiconductors, which are among the nation’s biggest exports.

The later implementation of tariffs, though, means that their impact may materialise in 2026 and beyond.

The World Trade Organization has estimated that growth in global goods trade will slow to 0.5 per cent in 2026, down sharply from 2.4 per cent in 2025. The International Monetary Fund sees global economic expansion at 3.1 per cent, slower than the 3.2 per cent in 2025.

Analysts also see global AI-driven demand cooling in 2026 – though, as Ms Yue noted, it is not expected to dissipate.

Hence, she forecasts Singapore’s gross domestic product growth in 2026 at around 3.8 per cent – higher than MTI’s and her own earlier prediction of 3.1 per cent.

“The good news is that the anticipated slowdown in trade could be cushioned by resilient intra-Asian trade and re-exports linked to China’s export push,” Ms Yue said, adding that machinery and equipment investment is expected to maintain some momentum this year because of still robust, albeit softer, global AI demand.

She added that investments in public infrastructure projects by the Singapore Government will also stay elevated, supporting overall growth.

Ms Selena Ling, chief economist and head of group research and strategy at OCBC Bank, said Singapore’s 2026 Budget – due on Feb 12 – will maintain the focus on key issues such as job security, cost of living, housing, family, education, healthcare and retirement adequacy.

But given the complex global economic backdrop, government spending might also tilt slightly towards growth-enhancing initiatives such as digital transformation, green economy investments and workforce upskilling, she said.

Ms Ling, who estimates 2026 GDP growth at 2 per cent, is also looking towards the upcoming first set of recommendations from the Economic Strategy Review following the Budget announcement. Singapore is reviewing its economic strategy in the face of a fractured global trade order and deepening geopolitical tensions.

Driven by strong output expansions in the biomedical and electronics clusters, the manufacturing sector posted growth of 15 per cent year on year in the fourth quarter, accelerating from a 4.9 per cent increase in the previous quarter.

MTI said biomedical manufacturing saw robust growth in the pharmaceuticals segment, while electronics was boosted by sustained demand for AI-related semiconductors, servers and server-related products.

The construction sector expanded 4.2 per cent in the fourth quarter, moderating from the 5.1 per cent growth in the preceding quarter. Growth during the quarter was supported by an increase in both public and private sector construction projects, said MTI.

Within the services sectors, the export-driven wholesale and retail trade, and transportation and storage sectors collectively grew 3.9 per cent in the fourth quarter, faster than the 3.7 per cent growth in the previous quarter.

Information and communications, finance and insurance, and professional services sectors expanded 4.2 per cent, extending the 4.5 per cent growth in the previous quarter.