Economists raise inflation projections, lower growth forecasts in first MAS survey since Iran war

[SINGAPORE] Private-sector economists raised their 2026 inflation forecasts sharply, while slightly lowering their growth expectations, the Monetary Authority of Singapore’s (MAS) latest quarterly survey of professional forecasters released on Wednesday (Jun 17) indicated.

The full-year median forecasts came in at 2.3 per cent for headline inflation and 2 per cent for core inflation, both up from 1.5 per cent in the March survey.

With these increases, the economists’ predictions are closer to the upper end of the authorities’ 1.5 to 2.5 per cent forecast range for both headline and core inflation.

In the first quarter, headline inflation (1.5 per cent) was in line with the previous survey’s forecast, while core inflation (1.4 per cent) was slightly below. For Q2, economists project that headline and core inflation will reach 2.1 and 1.6 per cent, respectively.

Meanwhile, the median forecast for 2026 full-year growth fell marginally to 3.5 per cent in the June survey, from 3.6 per cent in March. This was despite higher growth expectations across sectors.

The official forecast range for 2026 full-year growth is 2 to 4 per cent.

In Q1, gross domestic product growth was a higher-than-expected 6 per cent. For Q2, the economists expect the economy to grow 4.3 per cent.

DBS senior economist Chua Han Teng said the adjusted full-year projections “reflect a resilient economy confronting Middle East disruptions and energy price shocks from a position of strength”.

Robust artificial intelligence-driven exports, resilient growth in modern services and a construction boom have offset energy-related challenges, he added.

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Singapore maintains 2026 growth forecast at 2-4% despite rising downside risks from Iran war

More monetary policy tightening moves on the cards this year, but economists split on July vs October decision

The majority of respondents still expect the central bank to keep monetary policy settings unchanged in the upcoming July meeting, but a larger share now expects tightening.

The latest survey was sent to 25 professional forecasters on May 25, with 22 responses received.

The previous survey was sent out on Feb 10, several weeks before the conflict in the Middle East began, with the US and Israel launching strikes on Iran on Feb 28.

Sectoral breakdown

Despite the lower forecast for overall growth, expectations for individual sectors improved.

• Manufacturing: 5 per cent, up from 4.3 per cent;
• Finance and insurance: 4.5 per cent, up from 3.6 per cent;
• Construction: 6.5 per cent, up from 5 per cent;
• Wholesale and retail trade: 4.9 per cent, up from 4 per cent; and
• Accommodation and food services: 1.8 per cent, up from 1.3 per cent.

MAS noted that while all respondents provided overall forecasts, only some gave sectoral breakdowns. Overall GDP also includes other sectors for which breakdowns are not provided, such as transport and storage.

In line with the higher manufacturing expectations, the growth forecast for non-oil domestic exports rose to 6.1 per cent, from 4.5 per cent.

But private consumption growth is now expected to be 3.2 per cent, down from 3.5 per cent.

The expected overall unemployment rate for the year stayed the same at 2.1 per cent.

Monetary policy shifts

Most respondents expect monetary policy settings to remain unchanged in July’s upcoming policy meeting, but a larger share is now predicting a move to tighten.

In the latest survey, 38.1 per cent of respondents – higher than 23.5 per cent in the previous poll – expect MAS to tighten by increasing the slope of the Singapore dollar nominal effective exchange rate (S$NEER) policy band. The remainder expect no change in the slope of the band.

Expectations of tightening have also risen for the October meeting, with 30 per cent now anticipating a slope increase, up from 17.6 per cent in the previous survey.

For July’s meeting, one respondent expects MAS to raise the level at which the S$NEER is centred. In the previous survey, no respondents expected this level to be changed.

No economists predict any change to the width of the band.

At its last meeting in April, the central bank increased the rate of appreciation of the S$NEER policy band. This was its first tightening since October 2022, when it wrapped up a cycle of five consecutive moves to combat post-pandemic inflation.

Before the April meeting, MAS had held its settings steady since July 2025, after easing in January and April 2025.

Risks to outlook

With this being the first survey since the war began, the Middle East conflict emerged as a new two-sided risk.

Prolonged or escalating conflict in the Middle East was the most cited downside risk to Singapore’s economic outlook, by 85 per cent of respondents. It was also cited as the top risk by 70 per cent of respondents.

In the previous survey, the most cited downside risk was other geopolitical tensions, such as trade tensions. It was highlighted by just 35 per cent of respondents in the latest survey, down from 94.4 per cent before.

The US’ foreign trade agency is using Section 301 to keep US tariffs enforced after Section 122 tariffs lapse in end-July, said Denise Cheok, head of South-east Asia economics at Moody’s.

In the June survey, a potential bursting of the AI bubble was also cited by a smaller share of economists, at 60 per cent, down from 66.7 per cent.

A sharp correction in AI-related demand would expose Singapore to the volatility “plaguing the global economy”, Cheok noted. “Higher energy prices and tighter financing conditions in the form of higher interest rates are all factors that could lead down this path.”

For upside risks to Singapore’s outlook, the tech cycle was cited by all respondents, up from 94.4 per cent in March; 80 per cent placed it as the top upside risk in the latest survey.

De-escalation in the Middle East conflict was the next most cited upside risk, raised by 55 per cent of those surveyed, followed by inflows into Singapore, at 25 per cent.

“Market sentiments have definitely improved in the recent few days on hopes of the US-Iran deal, as seen in the sharp retracement of crude oil prices,” said OCBC chief economist Selena Ling.

If implemented following the reported Friday signing, the interim peace deal would reopen the Strait of Hormuz and extend the ceasefire by 60 days.

But Ling also flagged uncertainties about the draft agreement and “healthy scepticism” about the deal’s sustainability.

Cheok pointed out that even if the US and Iran abide by the deal, energy prices will remain relatively high in the near term, accounting for time to restart full capacity production.

Insurers will demand a “risk premium”, or higher compensation for any potential flare-up in the strait, even after the conflict dissipates, she said.

Chua added that critical supply inflows will take time to normalise, noting the time needed to rebuild confidence in transiting the strait and remaining uncertainty.

Ling expects central banks to prefer a wait-and-see approach, to see if the decline in energy prices will be sustainable, given these concerns about the logjam, damage to energy infrastructure, and the speed at which feedstock inflows resume.

Still, Chua said that the tail risks of rising input cost pressures, persistent severe supply chain disruptions and significantly weakened external demand appear to have been reduced.