AI boom prompts economists to lift 2026 growth forecasts beyond MTI’s upgraded 4.5-5.5% range

[SINGAPORE] Private-sector economists have raised their full-year growth forecast for Singapore, after the official forecast was raised to 4.5 to 5.5 per cent, from 2 to 4 per cent previously – with at least one bank’s revised forecast sitting above the top end of the upgraded range.

The revision, announced on Tuesday (Aug 11), comes on the back of a better-than-expected first half of 2026, during which the economy expanded 6.1 per cent year on year.

Economists largely attributed the stronger-than-expected performance to artificial intelligence-related investment in the region’s electronics, semiconductor and precision engineering sectors, which fed through to Singapore’s manufacturing and export-linked industries.

In the second quarter alone, gross domestic product grew a revised 5.9 per cent from the year before, easing slightly from the 6.3 per cent pace notched in Q1.

The reading was slightly firmer than the median 5.8 per cent forecast among a Bloomberg poll of economists.

On a quarter-on-quarter, seasonally adjusted basis, the economy grew 1.4 per cent in Q2, extending the 1.2 per cent expansion in the first three months of the year.

Growth in the quarter was driven by manufacturing, wholesale trade, as well as the finance and insurance sectors, said Ministry of Trade and Industry (MTI) Permanent Secretary Beh Swan Gin at a media briefing on Tuesday morning.

Manufacturing output surged 12.5 per cent year on year, driven largely by the electronics and precision engineering clusters, as robust global demand for AI-related semiconductors – including networking and memory chips – fed through to production lines.

“Notably, robust global AI-related capital expenditure boosted growth in the electronics and precision engineering clusters of the manufacturing sector, as well as the machinery, equipment and supplies segment of the wholesale trade sector,” said Dr Beh.

Forecast upgrades

At least five banks and research houses raised their own 2026 growth forecasts for Singapore after MTI’s forecast, citing the stronger-than-expected H1 performance and an improved outlook for AI-linked capital spending in H2.

DBS senior economist Chua Han Teng raised his 2026 forecast to 5 per cent, from 4.3 per cent before, on the back of a strong H1 performance and “the likely persistence of the global AI boom”.

“This is despite ongoing geopolitical challenges, and a moderation in the overall GDP cycle due partly to high base effects,” he said.

Maybank economists Chua Hak Bin and Brian Lee also lifted their forecast to 5.2 per cent from 4.8 per cent, and raised their 2027 growth forecast to 3.3 per cent, from 3.1 per cent.

They said the AI capex boom, domestic construction boom and safe-haven capital inflows will be powerful drivers likely to support growth in H2.

UOB associate economist Jester Koh nudged his forecast up to 5 per cent, from 4.8 per cent previously, though he flagged that momentum in the semiconductor and electronics-related sectors could moderate later in the year.

Nomura economists Euben Paracuelles and Chen Yiru were the most bullish of the group, raising their forecast to 5.7 per cent from 4.6 per cent, above MTI’s newly upgraded forecast.

The economists expect growth to hold up at 5.3 per cent in H2, “driven by multiple growth engines”. This includes new AI-linked manufacturing capacity such as Micron’s S$9.5 billion high-bandwidth memory plant.

RHB was the only outlier, keeping its forecast unchanged at 4.5 per cent, at the lower end of the official forecast range.

Its group chief economist Barnabas Gan and associate research analyst Laalitha Raveenthar said the stronger-than-expected H1 print “warrants an upward revision to our full-year growth forecast, but not a more optimistic assessment of Singapore’s economic outlook”, with growth expected to moderate to around 3.2 per cent year on year in H2.

AI tailwinds, Middle East risks

Economists broadly agreed that the improved outlook reflects two offsetting global forces: a stronger-than-expected AI investment boom and a milder-than-feared economic impact from the Middle East conflict.

UOB’s Koh noted that while the blockade of the Strait of Hormuz disrupted global energy and intermediate input supplies, a drawdown of oil inventories and a shift to alternative energy sources have capped the rise in prices.

At the same time, continuing tensions in the region and lower global oil inventories are expected to keep energy and input prices elevated in H2, with further US tariff actions and the risk of a sharp correction in AI-related capital markets cited as the other key downside risks, he added.

Speaking to reporters after the figures were released, Dr Beh said he did not believe Singapore was over-reliant on AI-driven growth. The support was not specific to AI producers, he said, noting that component suppliers were also benefiting.

Some economists were less sanguine about the concentration of growth.

RHB’s Gan and Raveenthar noted that the expansion “was not broad-based as the manufacturing sector accounted for the bulk of the overall expansion”.

They warned of the risk of “a sharper-than-expected correction in AI-related investment” that could weaken global demand for semiconductors, memory chips and server-related products.

Separately, DBS’ Taiwan economist Ma Tieying noted in a July report that the broader AI supercycle appeared to be “approaching a peak”, with monetisation – whether enterprises and consumers are ultimately willing to pay for AI services at scale – being the biggest source of uncertainty for the cycle ahead.

Regional growth

MTI noted that the 2026 growth forecasts of Taiwan, South Korea and most South-east Asian economies have also been upgraded, reflecting the same AI-related export tailwind lifting Singapore.

Taiwan’s Directorate General of Budget, Accounting and Statistics upgraded its 2026 GDP growth forecast to 9.64 per cent in May, from 7.71 per cent, citing “stronger-than-expected global demand for AI”.

DBS expects Taiwan’s growth to come in at 9.4 per cent for 2026, with its Q3 growth sustaining above trend, and then normalising from Q4.

The Bank of Korea similarly lifted its 2026 forecast to 2.6 per cent, from 2 per cent, in May, on the back of surging chip exports.

ANZ Asia economist Krystal Tan expects full-year growth of 3.5 per cent, from 3.1 per cent, as semiconductor demand is expected to remain robust, with the AI build-out’s heavy reliance on high-bandwidth memory and DRAM continuing to play to Korean chipmakers’ strengths.

The rest of South-east Asia’s Q2 growth was more mixed.

In Q1, Indonesia’s economy grew 5.3 per cent year on year, easing from 5.6 per cent, with domestic demand rather than AI exports doing most of the work, said RHB associate economist Wong Xian Yong in a report.

Vietnam fared considerably better, with GDP up 8.4 per cent, driven in part by export-oriented manufacturing on the back of strong global AI hardware demand.

The Philippines was the outlier, with growth slowing sharply to 2.3 per cent, from 2.8 per cent, on a sharp contraction in fixed investment. This prompted the authorities to cut their 2026 growth target to 3.5 to 4.5 per cent, from 5 to 6 per cent previously.

Malaysia has only released an advance estimate showing growth accelerating to 5.8 per cent, from 5.4 per cent, powered by the fastest manufacturing expansion in nearly two decades on the AI-driven semiconductor upcycle. The final data is due on Friday.

Thailand has yet to report its Q2 figures; growth came in at 2.8 per cent in Q1.