Singapore’s 2026 growth forecast could be upgraded to 4–5% after robust Q2 GDP

SINGAPORE: Singapore’s economic outlook for 2026 has strengthened after the economy expanded more than expected in the second quarter, prompting economists to raise their growth forecasts and fuelling expectations that the Ministry of Trade and Industry (MTI) could soon lift its official full-year projection.

Following second-quarter gross domestic product (GDP) growth of 5.7% year on year, MTI is now widely expected to revise its official forecast to between 4% and 5%, up from its current range of 2% to 4%.

The latest GDP figure exceeded the 5.5% median forecast in a Bloomberg survey.

Among those revising their outlook was Maybank, whose economists told The Business Times (BT) that economic growth during the first half of the year was tracking at a stronger-than-expected 6% year on year after first-quarter growth was revised upwards.

They added that the second half of the year is expected to see more moderate growth, partly because of the high comparison base created by the strong first half and also factoring in risks stemming from a possible collapse of the ceasefire between the United States and Iran, as well as the potential closure of the Strait of Hormuz.

Despite those uncertainties, they said several major factors should continue to underpin economic expansion in the months ahead. These include sustained global investment in artificial intelligence infrastructure, a robust domestic construction sector, strong liquidity within the banking system, healthy loan demand and substantial fiscal support.

Maybank’s revised forecast implies GDP growth of 3.7% in the second half of 2026, representing a slower seasonally adjusted quarterly pace of around 0.5%, compared with 1.2% during the first half of the year.

The bank left its 2027 growth forecast unchanged at 3.1%, while noting that further increases in capital expenditure by major US hyperscale technology companies could provide additional upside.

Bank of America also became more optimistic about Singapore’s prospects, with analysts raising their 2026 GDP forecast to 4.5% from 3.4% previously, placing it above MTI’s current official range.

The analysts told BT that the Monetary Authority of Singapore’s July monetary policy review had become “increasingly live” for a possible policy tightening, although they continue to expect the central bank to leave policy unchanged this month before tightening in October.

Other economists maintained their forecasts, which were already above the government’s existing projection.

DBS senior economist Chua Han Teng kept his forecast at 4.3%, saying that strong AI-driven trade growth had more than offset headwinds from the energy sector and should continue supporting the economy through the second half. He identified modern services, particularly financial services, together with construction, as the key pillars of growth.

OCBC chief economist Selena Ling also maintained her 4.3% forecast after previously raising it in anticipation of a strong second-quarter performance.

RHB stood apart by retaining its forecast at 4%, while cautioning that growth momentum may ease during the second half of the year.

Advance estimates released by MTI on Tuesday (Jul 14) showed Singapore’s economy grew 5.7% year on year in the second quarter. While this represented a slight moderation from the revised 6.3% growth recorded in the first quarter, it still exceeded market expectations.

On a seasonally adjusted quarter-on-quarter basis, GDP expanded 1.1%, compared with 1.3% in the previous quarter.

Manufacturing was the standout performer, growing 12.2% year on year after recording 8% growth in the first quarter.

The sector’s strong performance was driven primarily by the electronics and precision engineering clusters, supported by continued global demand linked to artificial intelligence, particularly for semiconductors and semiconductor manufacturing equipment.

MTI said every manufacturing cluster expanded except chemicals and biomedical manufacturing.

The chemicals sector contracted as feedstock disruptions arising from the conflict in the Middle East weighed on production, while biomedical manufacturing also declined.

The construction sector recorded 6.2% year-on-year growth, slowing from 12.9% in the first quarter but continuing to benefit from both public- and private-sector projects.

However, on a seasonally adjusted quarter-on-quarter basis, construction output fell 2.1%, marking its first sequential contraction since the first quarter of 2025.

The services-producing industries grew 4.6% year on year, easing from 6.2% previously. On a quarterly basis, the sector expanded by 0.3%, down from 2% in the first quarter.

Within services, wholesale and retail trade together with transportation and storage posted the strongest growth, expanding 6.3% year on year, although this was slower than the 9.3% recorded in the previous quarter.

Wholesale trade continued to benefit from strong machinery, equipment and supplies activity driven by electronics exports linked to AI demand, while growth in transportation and storage was led by the water transport segment.

The information and communications, finance and insurance, and professional services group expanded 3.9% year on year, slightly slower than the 4.5% growth seen previously.

Growth in the finance and insurance sector was mainly supported by banking and insurance activities, with total loans increasing 10.5% year on year in May.

Meanwhile, the accommodation and food services, real estate, administrative and support services, and other services group recorded 2.7% growth, easing from 3.2% in the first quarter.

Every sector within the group expanded except food and beverage services, while the real estate industry continued to benefit from steady developer activity.

Looking ahead, economists generally expect continued demand for AI-related semiconductors and precision engineering products to remain the primary engine of Singapore’s growth. At the same time, they cautioned that renewed tensions in the Middle East and the possibility of a correction in AI-related asset valuations remain key risks that could affect the outlook in the months ahead.