(May 25): Singapore said its economic outlook for this year has weakened as the energy crunch from the Middle East conflict weighs on global growth, flagging macro risks despite a robust first quarter thanks to the artificial intelligence (AI) boom.
While gross domestic product (GDP) January-March grew a seasonally adjusted 1% from the previous quarter — well above the median 0.2% forecast in a Bloomberg survey — the city-state warned the US-Israel conflict with Iran will drag on global activity and consumption.
“Downside risks to Singapore’s economic outlook have risen significantly,” the Ministry of Trade and Industry (MTI) said in its release Monday. It cited threats including continued disruption to global energy supplies, a renewed escalation of US tariff hikes and a sudden pullback in global AI-related capital spending.
Despite that warning, the MTI maintained its 2026 GDP growth forecast at 2%-4%, in line with the upgraded outlook it set in February. Growth came in at 5% last year.
Singapore’s exposure to AI through electronics exports and digital services has helped insulate the city-state from both the threat of US tariff hikes last year and now the energy crunch from the Middle East conflict.
“If the US and Iran can reach a deal soon that opens up the Strait of Hormuz, then that downside growth risk will diminish and Singapore’s growth could come in at the upper end of MTI’s forecast range,” said Khoon Goh, head of Asia research at Australia & New Zealand Banking Corp.
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That remains very uncertain. Hopes of resolution rose over the weekend, and oil prices fell Monday, after US President Donald Trump touted progress toward a deal, although both sides have signalled nothing has been finalised.
Even then, the trade ministry’s permanent secretary Beh Swan Gin said in a briefing that supply disruptions will likely persist for a few months after an agreement is reached, as crude and natural gas production facilities need time to come back onstream.
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The Singapore dollar was up 0.3% to 1.2767 per dollar on Monday. The currency is among the top performers in Asia this year as the nation’s stability lures investors seeking havens amid the war.
“External risks have risen, particularly around geopolitics, energy prices and supply-chain disruptions, which could weigh on growth while also adding to imported inflation pressures,” said Christopher Wong, currency strategist at Oversea-Chinese Banking Corp Ltd.
The Monetary Authority of Singapore is assessing the situation “meeting by meeting” and sees its latest policy settings in April as still appropriate, deputy managing director Edward Robinson said. The central bank’s economic assessment is consistent with the outlook set in Singapore’s first-quarter data on Monday, he added.
Singapore’s core inflation gauge in March edged up to 1.7%, but still below the 2% level its central bank has frequently said it’s comfortable with over the medium term.
Core inflation for April, due out at 1pm local time Monday, is pegged at 1.8% in a Bloomberg survey. The Monetary Authority of Singapore last month tightened policy, the first such move in Asia.
“If growth stays intact and price pressures continue to pick up, then another policy tightening down the road cannot be ruled out,” OCBC’s Wong said.
From a year earlier, first-quarter growth came in at 6%, compared with 5.2% in the Bloomberg survey and 4.6% preliminary estimate last month.
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Asian manufacturers embedded in the AI supply chain, including Taiwan and South Korea, are among the fortunate few that have seen their economies surge on the seemingly insatiable demand for their tech exports and services.
“Sustained global AI-related capital spending should continue to be a key driver of growth for the electronics and precision engineering clusters within the manufacturing sector,” the ministry said in a statement. Overall goods trade rose more than 25% in the first quarter.
Singapore’s resilience has so far spurred strong safe haven demand, supporting its dollar and driving its stock market to a record. Home sales last month hit a six-month high.
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