S’pore’s economic resilience will face headwinds in second half of 2025 from tariffs, trade conflicts: MAS

SINGAPORE – Singapore’s better-than-expected economic performance so far in 2025 will be put to the test in the coming months

as higher tariff rates kick in,

along with the risk of renewed trade conflicts and financial shocks, the central bank has said.

The Monetary Authority of Singapore (MAS) added that both the global and local economies remain subject to significant uncertainty for the rest of 2025 and 2026.

The anticipated rise in tariff rates and persistent uncertainty of their impact are likely to weigh on final demand across many economies. As a result, growth in Singapore’s major trading partners is projected to slow over the remainder of 2025 and into 2026.

“Against this backdrop, Singapore’s growth is expected to moderate over the rest of the year,” MAS said in its quarterly Macroeconomic Review report on July 30.

Still, reflecting the stronger-than-expected performance in the first half, economic growth for the whole of 2025 is expected to be firmer than previously envisaged, it added.

MAS said the effective US tariff rate on Singapore’s exports is now at 7.8 per cent, up from 6.8 in April, after the US doubled tariffs on steel and aluminium to 50 per cent in June. Steel and aluminium account for 4.1 per cent of Singapore’s exports to the US.

As for broader reciprocal tariffs, some progress has been made in trade negotiations between the US and other countries, with rates for China, the European Union, Japan and Vietnam settling below the April 2 levels following the recently concluded framework agreements.

But overall tariffs on Singapore’s trading partners, particularly those in its immediate neighbourhood, would likely rise above the base 10 per cent rate Singapore is subjected to.

This would in turn affect Singapore indirectly through its intermediate goods and services exports to these countries, MAS said.

The front-loading of export orders that held up the economy will likely dissipate as US President Donald Trump’s tariff pause ends on Aug 1 for most economies and the trade war truce for China ends on Aug 12.

“The trade-related sectors could experience some payback from the front-loading driven growth seen in the first half of the year while underlying demand could be weighed down by prevailing uncertainties,” MAS said.

The economy

averted a possible technical recession in the second quarter of 2025,

expanding by 1.4 per cent quarter on quarter. That was a turnaround from the 0.5 per cent contraction in the first quarter.

Year on year, the economy grew 4.3 per cent, extending the 4.1 per cent growth in the first quarter.

However, the performance that exceeded expectations was mainly due to a pickup in the trade-related sectors of the economy – aided by front-loading of orders by businesses ahead of potential increases in US tariffs.

Coupled with the exemptions for electronics and pharmaceutical products from the tariffs, trade-related activities increased.

However, the boost from front-loading was uneven, with re-exports outperforming domestic manufacturing.

MAS said in real terms, re-exports surged by 31 per cent year on year in the second quarter, while domestic exports and industrial production grew at a more moderate pace.

Trade flows were also lopsided.

MAS said Singapore’s re-exports were underpinned by the US and Taiwan markets, reflecting the Republic’s traditional role in facilitating trade in both the downstream and upstream stages of the production chain.

In the downstream segment, there was a sharp increase in Singapore’s re-exports of final electronics such as personal computers and mobile phones, as well as a broad range of machinery and equipment bound for the US.

While external headwinds may spill over into domestic-oriented sectors such as retail and food and beverage, healthy household balance sheets and government support measures should help cushion the impact.

“Some pockets of support also remain in the construction sector as well as the sentiment-sensitive segments within the financial sector.”

MAS said search for better returns by global and local investors could provide some upsides to growth in Singapore’s financial sector. “Notwithstanding the heightened volatility, financial markets seem rather resilient, largely recouping the sharp valuation losses of early April by end-May as trade negotiations showed signs of progress.”

Amid these market gyrations, some retail investors had increased their allocations to oversold assets and benefited from the subsequent recovery.

Similarly, institutional investors such as fund management firms have increased their net risk exposures since April and are looking at diversifying their portfolios amid the increasingly complex global investment landscape.

“As such, market trading activity could pick up and provide some support to growth through net fees and commissions of banks, fund managers, forex and security dealers,” MAS said.

However, the uncertainty facing the Singapore economy is likely to persist and affect companies’ investment decisions.

“As firms remain wary of the longer-term impact of tariff and non-tariff barriers, they could put longer-term plans on hold while making incremental adjustments to production and investment decisions.”

Consequently, business expenditure might decline gradually, extending the drag on gross fixed capital formation and hence gross domestic product (GDP) growth over a more prolonged period, MAS warned.

The central bank said labour market conditions in Singapore could also moderate further in the second half of 2025, amid uncertain economic growth prospects.

“Demand for workers could continue to soften over the second half of this year as GDP growth slows and firms hold back on their expansion plans given an uncertain economic outlook.”