Trump’s trade war puts Singapore’s economic growth, jobs and wages at risk, says MAS

SINGAPORE - The raft of tariffs announced by US President Donald Trump and the uncertainty over the extent of damage they will cause across the global economy will depress economic and wage growth in trade-driven Singapore, said the Republic’s central bank.

In its quarterly macroeconomic review released on April 28, the Monetary Authority of Singapore (MAS)

maintained the zero per cent to 2 per cent growth forecast,

but warned that prolonged trade conflicts could pose further downside risks to the country.

The weakening growth outlook will, however, keep inflation – already at a four-year low – modest, with both core and all-items inflation averaging between 0.5 per cent and 1.5 per cent in 2025.

Singapore’s core inflation, which excludes private transport and accommodation costs to better reflect the expenses of households here,

eased to 0.5 per cent year on year in March

– its lowest level since March 2021.

While the challenging global trade environment will hit job prospects in trade-related sectors of manufacturing and wholesale trade disproportionately, most firms are likely to pull back on their hiring and expansion plans amid the economic uncertainty, dragging down employment growth for a wider array of sectors, MAS said.

The Ministry of Manpower’s preliminary data for the first quarter of 2025, also released on April 28, showed the unemployment rate has ticked up slightly while employment growth slowed from the previous quarter.

MAS said: “Further, heightened geopolitical and trade policy uncertainty poses additional downside risks to Singapore’s small and trade-dependent economy, and consequently jobs and livelihoods.”

In concert with the deteriorating global growth outlook, economic activity in Singapore has been showing signs of softening since the beginning of 2025.

Singapore’s seasonally adjusted gross domestic product (GDP) contracted by 0.8 per cent quarter on quarter in the first three months of 2025, a pullback from the 0.5 per cent expansion in the last quarter of 2024.

MAS said: “While there are nascent indications of economic softening at the sectoral level, these weaknesses have yet to become deeply entrenched or pervasive.”

However, the central bank noted: “Prolonged trade tensions could pose downside risks to growth, through further disruptions in trade flows, undermining business investments and dampening global demand.

“Conversely, trade tensions may de-escalate over time, which could boost sentiments and export activity.”

Mr Chua Han Teng, a senior economist at DBS Bank, said there are considerable downside risks to Singapore’s growth outlook.

“While not our base case, in our view, the greatest threat and severe downside risk scenario to the city-state’s highly export-reliant and open economy would come from a global trade and manufacturing recession as well as disorderly financial adjustments, arising from a significant escalation of trade tensions that snowball into a global tit-for-tat trade war,” he said.

Dr Chua Hak Bin, regional co-head of macro research at Maybank, said a mild technical recession – two consecutive quarters of negative growth – is certainly on the cards. But a full-blown annual recession is unlikely, he added.

He believes that Singapore’s economy will still grow by 2.1 per cent in 2025, slightly above the Ministry of Trade and Industry’s zero per cent to 2 per cent growth forecast.

He said Singapore’s relatively low tariff of 10 per cent could lead to a greater channelling of trade flows through the island. The Republic’s safe haven status also appears to be attracting fund flows, strengthening the Singapore dollar and supporting financial activities here, he added.

MAS said that activity in trade-related clusters has cooled even as global indicators continued to suggest some pre-tariff front-loading and firm electronics demand.

For instance, key indicators such as US imports of electronics and global chip sales recorded strong growth in the first two months of 2025.

Still, Singapore’s industrial production moderated to a 4 per cent year-on-year growth in the first quarter of 2025, down from 5.5 per cent in the fourth quarter of 2024. This is mainly weighed down by slower activity in the electronics cluster.

Overall, non-oil export growth has eased over this period, reflecting weakness in the non-electronics segment as well, MAS said.

The central bank said that amid significant uncertainty around US trade policy and its impact, global GDP growth is expected to slow to between 2 per cent and 2.5 per cent in 2025, from 3.2 per cent in 2024.

“Global growth could slip further if the US broadens and intensifies the tariffs to include other specific products such as semiconductors and pharmaceuticals,” MAS said.

It added: “Retaliatory actions by its trading partners will exacerbate the impact on growth. Market sentiments also remain fragile, and further shocks could trigger disorderly price adjustments, with the ensuing tightening in financial conditions compounding the downturn.”

MAS explained at length how the US tariffs announced on April 2 will affect the local economy both directly and indirectly, even as Singapore is subject to a baseline levy of 10 per cent – much lower than that for China, for instance, which is subject to the so-called reciprocal tariffs of 145 per cent.

The US also announced harsh reciprocal tariffs on a host of other countries including close allies such as the European Union and Japan.

However, on April 9, a 90-day pause was announced on the higher-band tariffs except those imposed on China. Meanwhile, the baseline tariff and the 25 per cent sectoral levies on all US imports of steel, aluminium, and automobiles and parts remain in place.

MAS said the US is Singapore’s second-largest market, accounting for 11 per cent of its domestic exports in 2024.

Products subject to the baseline tariff account for about 55 per cent of Singapore’s domestic exports to the US, with product-specific tariffs on steel, aluminium, and automobiles and parts comprising a much smaller share of around 5 per cent.

While semiconductors, consumer electronics and pharmaceutical goods – which account for about 40 per cent of Singapore’s domestic exports to the US – are currently not subject to tariffs, the US has initiated trade probes into imports of these goods on national security concerns and could impose restrictions in the coming months, MAS warned.

It added that reciprocal tariffs will also be indirectly transmitted to Singapore through its trade linkages with other countries hit by them.

This indirect exposure can be proxied by Singapore’s value added embedded in US imports from partner economies.

Value added refers to the amount of value created in a product by a specific country, from the point of view of the entire supply chain. In essence, it represents the contribution of a country’s factors of production – land, labour, capital – to the final product.

With reciprocal tariffs on other countries on hold for now, the immediate impact of the levy will come from China, which is Singapore’s largest export market and also accounts for an important share in US imports, which are currently subject to the exceptionally high tariff rate.

“The intermediate goods and services that Singapore exports to China are used in the latter’s goods exports to the US,” said MAS.

There are other indirect spillovers through regional economies including those via Asean, given Singapore’s importance in production and trading supply chains that leverage its hub role in areas such as transport and financial services.

MAS said trade conflicts hurt global growth as economies that levy duties on imports suffer an increase in costs, which in turn weigh on business and consumer spending. Meanwhile, exporting countries that have been hit by tariffs will experience a negative external demand shock.

The ongoing global uncertainties are also likely to further dampen the already-moderating electronics cycle, MAS said, citing a December 2024 forecast by the World Semiconductor Trade Statistics.

The non-profit data provider had projected that global chip sales growth will moderate to 11.2 per cent in 2025 from 20 per cent in 2024.

Still, demand driven by artificial intelligence will provide some underlying support to the global semiconductor industry, according to MAS, because the shift towards more advanced and costly algorithms will mean a greater need for high-performance hardware.

Growth within modern services – mainly professional and financial – may also ease from 2024 amid volatility across financial markets, triggered by the trade tensions.

However, other modern services segments, such as information and communications, are expected to register firm growth, with digital transformation of businesses, supported in part by Budget 2025, driving demand for data and cloud services, it said.

MAS said domestic-oriented businesses will continue to provide an underlying base of activity in the economy.

The construction sector has a strong pipeline of projects, with firms leveraging government support and adopting solutions such as robotics, digitalisation and sustainability advancements to boost productivity.

Meanwhile, consumer-facing industries such as retail and food and beverages will continue to face a challenging operating environment, especially for the smaller firms, given high labour costs, cautious consumer sentiments and increased competition, it noted.