Singapore Economic Forecast Slightly Lower: 3.5% Growth in 2026, Inflation Raised

Strong AI-related demand continues to offset the economic impact of the Middle East conflict. Economists' growth forecast for Singapore's economy this year edged down only from 3.6% before the Iran war to 3.5%, reflecting the economy's overall resilience.

According to the latest Economist Survey Report released by the Monetary Authority of Singapore (MAS) on Wednesday (June 17), economists also predict that Singapore's economy could achieve 4.3% year-on-year growth in the second quarter. The economy grew 6.0% year-on-year in the first quarter, slightly above expectations.

MAS sent questionnaires to 25 economists and analysts on May 25 and received 22 responses. This was the first survey since the Iran war broke out at the end of February. The previous survey was sent on February 10, with economists forecasting 3.6% growth for the full year.

Xu Junjie, Deputy Economist at UOB, said in an interview with Lianhe Zaobao that the economists' full-year forecast is broadly unchanged from the previous survey, reflecting Singapore's economic resilience.

He noted: "AI-related positives continue to play a role. From the improvement in the May electronics PMI and the 94.8% year-on-year surge in electronics exports within non-oil domestic exports, these positives should last at least until the third quarter, helping to offset the drag from the Middle East conflict."

Economists surveyed by MAS also remain optimistic about several sectors. Among them, the full-year growth forecast for manufacturing was raised from 4.3% in the previous survey to 5.0%, finance and insurance from 3.6% to 4.5%, construction from 5.0% to 6.5%, wholesale and retail trade from 4.0% to 4.9%, and accommodation and food services from 1.3% to 1.8%.

Economists also raised their forecast for non-oil domestic export growth this year from 4.5% to 6.1%, but lowered their private consumption growth forecast from 3.5% to 3.2%.

Looking ahead to 2027, economists expect Singapore's overall economy to grow 2.5%, unchanged from the previous survey.

The survey was conducted before the US and Iran signed a truce memorandum. With the two countries signing the memorandum this week and planning to continue peace talks within 60 days, market sentiment has been boosted.

Xu Junjie believes that if there is substantial easing of US-Iran tensions in the coming months and progress toward a peaceful resolution, it will benefit Singapore's economic growth.

Sector Performance, Foreign Trade & Consumption Expectations Updated

Full-year growth forecasts: manufacturing raised from 4.3% to 5.0%; finance and insurance from 3.6% to 4.5%; construction from 5.0% to 6.5%; wholesale and retail trade from 4.0% to 4.9%; accommodation and food services from 1.3% to 1.8%.

Economists raised the 2025 non-oil domestic export growth forecast from 4.5% to 6.1%, while lowering private consumption growth expectations from 3.5% to 3.2%.

Inflation Forecast Raised: Headline 2.3%, Core 2.0%

On prices, affected by the Middle East conflict, economists raised their median full-year headline inflation forecast sharply from 1.5% in the previous survey to 2.3%, and core inflation from 1.5% to 2.0%.

Economists expect second-quarter headline and core inflation to be 2.1% and 1.6%, respectively.

Xu Junjie pointed out that since the war broke out on February 28, energy prices have remained high for about four months, and related cost pressures are expected to feed into core inflation, extending into the third quarter and early fourth quarter of 2026.

However, he believes that if energy transport through the Strait of Hormuz gradually normalizes, energy prices could fall, although they are expected to remain above pre-war levels. This would also ease further upward pressure on inflation.

Economists' median forecasts for 2027 headline and core inflation are 2.1% and 2.0%, respectively, higher than the 1.7% in the previous survey but moderating compared with this year's forecasts.

Monetary Policy Expectations & Key Risks

On monetary policy, 38% of economists expect MAS to tighten policy in July by raising the slope of the S$NEER policy band, up from 24% in the previous survey. The remaining respondents expect policy to remain unchanged.

Xu Junjie believes that if there is substantial easing of US-Iran tensions in the coming months and progress toward a peaceful resolution, it will benefit Singapore's economic growth.

However, OCBC Chief Economist Lin Xiuxin cautioned that the US-Iran memorandum still has many uncertainties, and the market remains cautious about whether the peace agreement can last long-term. She said: "Most central banks currently prefer a wait-and-see approach to see if the decline in energy prices can be sustained."

Economists surveyed generally believe that an escalation or continuation of the Middle East conflict is the biggest downside risk to Singapore's economy. In addition, an AI bubble burst, a slowdown in AI capex, and the spillover of related effects to financial markets could also impact the economic outlook.