Singapore lifts 2026 growth forecast to 2%-4% on AI outlook after economy outperforms in 2025

SINGAPORE – Singapore upgraded its full-year 2026 growth forecast to a range of 2 per cent to 4 per cent, with the economy projected to continue benefiting from a sustained global artificial intelligence (AI) investment boom.

The growth outlook was raised from an earlier range of 1 per cent to 3 per cent, after the economy grew much faster than expected in the final quarter of 2025.

The Ministry of Trade and Industry (MTI) also raised its growth figure for 2025 to 5 per cent from its initial estimate of 4.8 per cent made in January.

The upgrades came after growth surged 6.9 per cent in the fourth quarter of 2025, beating an earlier estimate of 5.7 per cent.

On a seasonally adjusted quarter-on-quarter basis, the economy grew 2.1 per cent in the fourth quarter, moderating from the 2.6 per cent expansion in the third quarter.

The 5 per cent growth for 2025 is a step down from 2024’s revised 5.3 per cent expansion. The 2024 growth figure was raised from a previous estimate of 4.4 per cent. The last time the economy grew faster than that was in 2021, when it rebounded from the Covid-19 pandemic with a 9.8 per cent growth rate.

MTI said 2025 growth was mainly driven by the manufacturing, wholesale trade and finance and insurance sectors.

Strong AI-related demand powered Singapore’s electronics cluster within the manufacturing sector, and the machinery, equipment and supplies segments of the wholesale trade sector

The boom in AI-related demand saw Singapore

raise its forecast for key exports

on Feb 10. They are now expected to grow 2 per cent to 4 per cent in 2026, up from the previous forecast of 0 per cent to 2 per cent.

Most analysts believe the momentum from the AI capital expenditure boom will continue. Some of the world’s top tech firms announced plans last week to invest more than US$660 billion (S$835 billion) in 2026 in AI-related infrastructure, assuring demand for electronics hardware such as semiconductors, which are a key Singapore export.

Mr Augustin Lee, MTI’s Permanent Secretary for Energy and Trade, said the stronger-than-projected upswing in the AI investment cycle could provide a greater boost to electronics demand.

However, he added that this outlook is subject to downside risks as well.

“A renewed escalation in tariff actions or flare-ups in geopolitical tensions could lead to a resurgence in economic uncertainty,” Mr Lee said in a virtual media briefing on Feb 10.

Also, a sudden pullback in global AI-related capital spending could trigger sharp corrections in global financial markets, he added.

MTI said the finance and insurance sector saw broad-based growth across all segments amid largely accommodative financial conditions, thanks to low interest rates.

In contrast, the food and beverage services sector contracted, partly due to a decline in the sales volume at restaurants amid shifts in dining preferences.

MTI said its previous forecast for 2026, announced in November 2025, was based on the expectation that gross domestic product (GDP) growth in major economies would ease as US tariffs worked their way through the global economy.

“Since then, the global economy has outperformed expectations, with most major economies turning in stronger-than-expected growth in the fourth quarter of 2025,” MTI noted in a statement.

Global trade activity remained resilient despite the US tariffs, likely reflecting effective US tariff rates that were lower than the announced headline rates, trade diversion facilitated by supply chain adjustments, and robust AI-related exports amid the AI investment boom.

“The stronger-than-expected growth momentum seen in the last quarter of 2025 is projected to carry into 2026,” MTI noted.

Apart from the AI investment boom, which is expected to be sustained in 2026, expansionary fiscal policies in several economies such as the US, Germany and Japan, as well as accommodative global financial conditions, should also support global growth in the quarters ahead.

MTI said: “Taking these factors into account, the GDP growth outlook for Singapore’s key trading partners for 2026 has improved, compared to the outlook in November.”

However, MTI said the pace of growth for most of these economies is still expected to ease from 2025 levels, in part due to the drag from the full-year impact of the US tariffs and rising trade barriers that would weigh on non-AI-related global trade.

Within the manufacturing sector, the electronics cluster is projected to grow at a stronger pace than previously expected, supported by robust demand for semiconductor chips in the data centre end-market due to the AI investment boom.

This will have positive spillover effects on the precision engineering cluster and the wholesale trade sector. Both the information and communications technology and finance and insurance sectors are projected to register healthy growth.

While sectors such as construction and real estate will be supported by public construction works and new residential launches, the performance of consumer-facing services sectors, such as retail trade and food and beverage services, is likely to remain subdued. This is partly due to locals shifting their spending overseas and changing dining preferences.

Analysts said data released so far in 2026 validates the positive outlook. They have also raised their growth forecasts.

DBS Bank senior economist Chua Han Teng said the global tech cycle – underpinned by sustained momentum from global AI-related demand – has yet to show any signs of waning. “Incoming manufacturing sentiment data highlights electronics as a key driver of near-term resilience,” he said.

Singapore’s purchasing managers’ index (PMI), a forward-looking indicator of manufacturing activity,

rose to a 10-month high in January

on demand for AI products and chips.

The PMI reading was also backed by a business expectations survey in which respondents cited a positive outlook for the next six months on the back of sustained AI-related demand.

Mr Chua cautioned that lingering external tariff headwinds continue to pose threats to Singapore’s trade-dependent economy.

“We therefore expect the lagged effects of higher US tariffs to restrain global trade,” he said, adding that Singapore’s non-electronics exports are likely to face downside pressures from these lingering tariff headwinds, reflecting the uneven dynamics within the trade-related sector.

Ms Selena Ling, OCBC Bank’s chief economist and head of group research, said the risks to the global economic outlook are two-sided – a stronger-than-projected upswing in the AI investment cycle on the one hand, and the potential for a renewed escalation in tariff actions and/or a sudden pullback in global AI-related capital spending on the other hand. Still, she said, the outlook so far appears brighter, given that the AI-related investment boom continues apace.

Ms Ling upgraded her 2026 growth forecast to 3 per cent from an earlier projection of 2 per cent. DBS also raised its forecast to 2.8 per cent from 1.8 per cent.