Singapore upgrades 2026 GDP growth forecast to 4.5%-5.5% on stronger AI boom

SINGAPORE – Singapore has sharply raised its economic growth forecast for 2026 to 4.5 per cent to 5.5 per cent, up from an earlier 2 per cent to 4 per cent range, on the back of a stronger-than-expected first-half performance and a surge in global AI-related capital spending.

The surprise upgrade has prompted some economists to reassess and raise their own forecasts for the country’s gross domestic product (GDP) growth in 2026.

Singapore’s economy grew by 5.9 per cent year on year in the second quarter, easing from the 6.3 per cent expansion in the previous quarter. The growth was slightly higher than the advance estimate of 5.7 per cent.

On a quarter-on-quarter seasonally adjusted basis, the economy expanded by 1.4 per cent, extending the 1.2 per cent growth in the first quarter. 

As a result, the Republic’s GDP growth came in at 6.1 per cent year on year for the first half of 2026.

Beh Swan Gin, permanent secretary at the Ministry of Trade and Industry, said at a virtual media briefing on Aug 11 that since the previous forecast in May, the global artificial intelligence investment boom has been stronger than expected. This has provided significant tailwinds for AI-related production and exports globally.

For the rest of 2026, a further acceleration in AI-related capital expenditure is expected to lift the growth prospects of economies plugged into the global technology value chain.

Beh noted that the 2026 GDP growth forecasts of regional economies such as South Korea, Taiwan and several South-east Asian countries have been upgraded.

Compared with a year earlier, GDP growth in the second quarter was driven by the strong performance of the manufacturing, wholesale trade and finance and insurance sectors.

The manufacturing sector expanded by 12.5 per cent year on year in the second quarter, extending the first quarter’s 7.3 per cent growth. Growth was largely driven by expansion in the electronics and precision engineering clusters on the back of robust AI-related demand.

There was a second consecutive quarter of contraction in the chemicals and biomedical manufacturing clusters.

The wholesale sector grew 8.3 per cent compared with the same period in 2025, following 13.6 per cent growth in the first quarter.

This growth was mainly driven by higher sales of machinery and equipment, especially telecommunications products, computers and electronic components.  

The finance and insurance sector grew 6.2 per cent compared with the same period in 2025, and up from 5.3 per cent in the previous quarter.

Growth was mainly driven by banks, which benefited from strong lending and fee income. Fund management also performed well, with fees and commissions recording double-digit year-on-year growth. 

By contrast, the food and beverage (F&B) services sector contracted, partly owing to a sustained increase in outbound travel by residents and a decline in visitor arrivals during the quarter.

Beh said the impact of the Middle East conflict was less severe than initially feared.

While the disruption to oil supplies has pushed energy prices up, countries have used existing oil reserves and switched to other energy sources, limiting price increases.

However, ongoing tensions and lower oil reserves are likely to keep energy and other input prices high during the rest of 2026. This would, in turn, exert upward pressure on global inflation and weigh on economic activity.

Meanwhile, US tariffs are expected to continue weighing on the exports of affected economies.

“On balance, Singapore’s external demand outlook for 2026 has improved,” Beh said.

As far as trade is concerned, Singapore does not for now anticipate an impact from the 12.5 per cent tariff imposed on exports to the US. Beh said the tariff affects about a third of exports from Singapore to the US, about $9.4 billion annually.

He said the AI boom is unlikely to cause much inflation for now. Inflation pressure is more likely to come from rising prices of fuel and commodities such as fertiliser and food. Core inflation is expected to stay between 1.5 per cent and 2.5 per cent for now.

Beh said Singapore is not relying only on the AI boom. The country’s growth has been broad-based, benefiting sectors such as finance, infocommunications, precision engineering and wholesale trade, while construction remains resilient.

However, some sectors, especially those affected by petrol and petroleum-related feedstock – such as the chemicals sector and the F&B industry – are still struggling.

The global economy still faces risks – in particular, rising conflict in the Middle East, more US tariffs or investors suddenly becoming worried about AI-related spending.

Against this backdrop, industries linked to the global AI boom, like electronics and precision engineering, are expected to do better.

Industries affected by Middle East supply disruptions, especially chemicals, petroleum and petrochemicals, could remain weak because companies have less crude oil and feedstock to work with.

Fuel and chemicals trading may decline. Higher fuel prices could reduce air and sea transport demand and make travel more expensive, slowing hotel-sector growth.

Information and communications should grow strongly because businesses are spending more on AI. Finance and insurance should also perform well, owing to steady lending and demand for wealth-management services.

Construction and real estate are expected to stay resilient.

Higher prices may make consumers spend less at shops and restaurants, but government support such as CDC vouchers may help soften the impact.

Some $500 in CDC vouchers was disbursed to every Singaporean household in June, with another $300 in CDC vouchers to be disbursed in January 2027, to help people manage cost increases resulting from the Middle East crisis. The vouchers are part of an overall $900 million support package.

Maybank economists Chua Hak Bin and Brian Lee upgraded their 2026 GDP growth forecasts to 5.2 per cent from 4.8 per cent.

They noted that South Korea’s exports rose 45.3 per cent in the first 10 days of August, signalling that AI demand remains strong.

Strong business activity and investment should also support lending and financial services, and wealth management should benefit from active stock markets and continued inflows of money seeking safer assets, the Maybank economists said.

Barnabas Gan, RHB’s group chief economist and head of market research, kept his 2026 GDP growth projection for Singapore at 4.5 per cent, noting that there are still risks ahead.

He said growth in the second quarter was heavily driven by manufacturing rather than being broad-based. Singapore is vulnerable to geopolitical tensions and a potential slowdown in AI-related investment, which could reduce global demand for semiconductors and hurt the Republic’s electronics exports and overall growth.

US trade policy is another concern, and could add further pressure to the economy.

UOB associate economist Jester Koh also upgraded his 2026 GDP growth forecast to 5 per cent from 4.8 per cent previously. He cautioned that momentum in the semiconductor- and electronics-related sectors could moderate.