Singapore may not top its 2025 GDP surge, but can still defy blow from US tariffs in 2026

SINGAPORE – Singapore’s economy may have set a level of peak performance in 2025 that will be hard to beat in 2026, but most analysts believe it can achieve enough economic growth in 2026 to keep unemployment low and wages up.

The familiar alarm over US tariffs delivering a devastating blow to global trade and economic growth – sounded at the start of 2025 – is likely to turn out again to be overdone.

Still, for an export-driven economy, such as Singapore, swings in global demand for goods will always remain a vulnerability.

Indeed, when US President Donald Trump unveiled his sweeping tariffs on April 2, 2025, raising the world’s largest economy’s average import duties to the highest since World War II, the quick conclusion was that a new era of protectionism was at hand.

But most of that gloom and doom did not really come to pass.

Thanks to Mr Trump’s back-and-forth on his reciprocal tariff rates, importers in the US and exporters in Asia and elsewhere took full advantage of the gaps between the threats and the actual imposition of tariffs by front-loading orders for goods.

And when the front-loading started to fade in the second quarter, AI-driven demand for electronic hardware, such as semiconductors, put the Singapore economy on track for a 4-per-cent-plus growth rate for a second year in a row.

The World Trade Organization (WTO) – which in April had estimated that global merchandise trade would shrink by 0.2 per cent in 2025 from 2.8 per cent growth in 2024 – had to revise its 2025 forecast up to 2.4 per cent growth in October.

On Dec 31, Prime Minister Lawrence Wong announced that the

Singapore economy grew 4.8 per cent

in 2025 – topping the Government’s forecast of 4 per cent. It was the economy’s best performance since 2021’s 9.8 per cent, when it bounced back from the pandemic-induced 2020 recession.

In 2026, however, the global economy will face an array of risks that could dampen growth.

For one thing, since most of the US tariffs were finally agreed upon and implemented in the latter half of 2025, the WTO believes the full burden of the tariffs will make its mark in 2026.

Hence, the WTO now forecasts that growth in global goods trade will slow to just 0.5 per cent in 2026. The International Monetary Fund also sees global economic expansion at 3.1 per cent, slower than the 3.2 per cent in 2025.

Some analysts also believe that the AI boom will lose some steam due to the widening gap between huge investments and uncertain returns, as well as significant infrastructure challenges and massive energy needs. 

Still, most economists expect Singapore’s economy in 2026 to perform better than the lower end of the Government’s growth forecast, given on Nov 21, of 1 per cent to 3 per cent.

HSBC and OCBC predict growth of 2 per cent. The more optimistic growth estimates are UK research firm Oxford Economics’ 3.8 per cent and Japanese investment bank Nomura’s 3.7 per cent.

HSBC’s ASEAN economist Yun Liu said Singapore’s electronics manufacturing has led the way, especially in the third quarter of 2025, when the other key export and gross domestic product growth driver – pharmaceuticals – was subdued.

But for Singapore, Ms Liu said, diversification is the key to its manufacturing outperformance. For example, transport engineering continues to grow at a double-digit pace.

“This not only contributes to the manufacturing sector, but has also boosted related services sectors such as wholesale.”

Data from the fourth quarter of 2025 supports hope for continued growth momentum.

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 the Ministry of Trade and Industry’s advance estimates released on Jan 2.

Singapore’s non-oil domestic exports rose by 11.6 per cent year on year in November – marking the second consecutive month of double-digit growth and exceeding consensus expectations of 6.8 per cent by a wide margin.

There are other factors at work as well.

The substitution of US import demand to the ASEAN region from higher-tariff countries, such as China, will boost not only trade but also inflow of foreign investments.

Singapore’s being subject to the 10-per-cent baseline reciprocal tariff – lower than most of its peers in Asia – means a lot of those investments will be heading for the Republic.

HSBC believes that after several years of subdued inflows of foreign direct investment (FDI), the US-China trade tensions since 2018 have been a game-changer for the whole ASEAN region.

Ms Liu said the ASEAN-6 (Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam) now captures 14.5 per cent of global FDI – with 65 per cent of it going to Singapore.

Dr Chua Hak Bin, the regional co-head of macro research at Maybank, believes, like most other analysts, that AI exuberance may cool down a bit but not fade away entirely.

In fact, he said, Singapore’s role in the AI supply chain will continue to deepen in 2026 with the opening of Micron’s $8.9 billion advanced packaging facility and UMC’s $6.5 billion wafer plant.

Beyond semiconductor manufacturing, Singapore is also attracting investments in AI research and development facilities and as a global test bed for new technologies, he said.

“The AI boom will continue to drive exports and investments in 2026, cushioning any shocks from higher US tariffs,” he said.

Since Singapore spends the most on AI and cloud in the ASEAN region, rising AI adoption will also buoy the information and communication (infocomm) services activity in the Republic.

The enduring gains in Asia’s exports include the rising intra-regional trade as well.

Mr Glen Hilton, Asia-Pacific CEO and managing director of shipping and logistics firm DP World, believes that amid geopolitical tensions, economic uncertainties and shifting trade dynamics, “China Plus Many” is emerging as a key strategy for building resilience and ensuring risk diversification.

The approach builds on the “China Plus One” strategy, where companies expanded sourcing and manufacturing beyond China to an additional location.

“As today’s trade landscape becomes more complex, businesses are increasingly adopting a multi-hub approach, spreading operations across multiple countries to reduce risks and enhance agility,” Mr Hilton told The Straits Times.

He said the China-Plus-Many strategy is not about moving out of China, but rather complementing its scale with capabilities in other regions, particularly South-east Asia.

And within South-east Asia, Singapore – already one of the world’s largest container transshipment hubs – sets the gold standard for trade facilitation at scale and is uniquely positioned to thrive in the China-Plus-Many landscape, he said.

Mr Chua Han Teng, senior economist at DBS Bank, said that “while the above-trend growth of 4-plus per cent over the past two years will be tough to replicate, the economy should demonstrate measured resilience in 2026”.

Singapore’s booming construction sector and robust modern services sector – that includes consulting, accounting and financial services, along with infocomm and media – will cushion the overall economy in 2026, he said.