Singapore positions itself for the next wave of growth
It stands to benefit from two major structural trends: AI-related trade and the China+1 strategy
SINGAPORE, a developed market, is growing like an emerging market.
For two straight years, the city-state has generated impressive growth of around 5 per cent, easily exceeding its potential growth rate.
In a year of back-and-forth tariff uncertainty, this outperformance reflects Singapore’s status as a bastion of trade, which has helped it withstand the impact of the 10 per cent tariff imposed by the US.
But can Singapore sustain high levels of growth in the Year of the Horse and beyond? There are good reasons to be optimistic about Singapore’s growth potential.
We see it benefiting from two major structural trends: artificial intelligence (AI)-related trade and the “China+1” foreign direct investment (FDI) strategy, under which companies diversify beyond China.
Trade, accounting for more than 300 per cent of Singapore’s gross domestic product, is crucial for Singapore’s small, open economy. The key to success is diversification – both in terms of trading partners and products.
Singapore’s non-oil domestic export (NODX) data speaks for itself: 15 per cent goes to the US, 14 per cent to China, 9 per cent to the European Union, and around 20 per cent to Asean.
This reflects a well-diversified trade portfolio, rather than dependence on a single economy. While its NODX to both the US and China fell year on year in 2025, shipments to other regions more than made up the difference.
But products also matter. Two of Singapore’s high-end manufacturing pillars – pharmaceuticals and semiconductors – have grown strongly.
And in a world defined by AI, Singapore is well-positioned to benefit from the elevated demand for advanced electronics. The recently unveiled Budget heavily emphasises AI. Prime Minister Lawrence Wong announced the establishment of the National AI Council, aimed at cultivating a robust AI ecosystem in Singapore.
Singapore has a 10 per cent global share in chip manufacturing, led by 3D NAND (advanced storage) memory chips, amplifiers, processors, and controller chips. The Republic also has a 20 per cent share of global semiconductor equipment manufacturing.
As global tech giants race to increase their capital expenditure (capex), Singapore’s strategic position in the semiconductor supply chain ensures that it can ride the AI wave. The AI boom also provides a tailwind for related industries such as precision engineering and wholesale trade services, which are high-value-added industries.
Singapore’s status as a regional hub has been underpinned by consistent inflows of high-quality FDI. Based on United Nations Trade and Development data, it accounted for almost 10 per cent of global FDI inflows in 2024.
This not only reflects Singapore’s increasing appeal as an investment destination for multinationals, but also its position as the strategic hub in Asean for the China+1 strategy.
Singapore has clearly benefited from the increasing economic links between Asean and China. Asean overtook the EU to become China’s largest trading partner in 2020; bilateral trade in 2025 exceeded US$1 trillion for the first time, reflecting the growth of Chinese FDI into the region’s manufacturing sector since the rise of US-China trade tensions.
Despite being a relative latecomer, China has expanded its FDI footprint in Asean quickly. In 2015, its share of FDI in each Asean economy was barely 10 per cent; this now ranges between 10 per cent and 30 per cent across the region.
While there were concerns about whether the tariffs under Trump’s second presidency would disrupt corporations’ China+1 strategy, preliminary 2025 data shows the trend persisting.
Economic challenges may periodically arise, but as history shows, Singapore has always had the ability to weather storms and find new growth engines.
As the country’s Budget 2026 indicates, investing in AI research and development capability, equipping the workforce with the right skills and supporting small and medium enterprises to ride the AI wave and expand their overseas presence are key to unlocking the country’s growth potential.
And Singapore is ready.
The writer is senior Asean economist at HSBC
