Economists raise Singapore 2026 growth forecast to 5%; more see AI bubble as a top risk

[SINGAPORE] Private-sector economists have raised their 2026 growth projections for the Republic to 5 per cent, from 3.5 per cent previously.

The median forecast in the Monetary Authority of Singapore’s (MAS) latest quarterly survey of professional forecasters is close to the upper end of the official forecast range of 4.5 to 5.5 per cent.

Most respondents in the September poll, released on Wednesday (Sep 2), still see no immediate change in monetary policy – but expectations have shifted further towards tightening.

The latest upgrade was expected, economists said, noting that the authorities upgraded their own forecast range – which was previously 2 to 4 per cent – in August.

Singapore had reported a stronger-than-expected first-half performance, with gross domestic product climbing 5.9 per cent in the second quarter, extending the 6.3 per cent growth recorded in the previous three months.

The Q2 number beat the median expectation of 4.3 per cent in the previous survey. For Q3, economists expect the economy to expand 4.6 per cent.

As for 2027, GDP is now predicted to expand by 3.1 per cent.

The latest survey was sent to 25 professional forecasters on Aug 11 and received 21 responses. It reflects their views and not those of MAS.

September’s 2026 growth upgrade reflects higher growth expectations across most sectors, excluding accommodation and food services:

• Manufacturing: 8.4 per cent, up from 5 per cent
• Finance and insurance: 5.4 per cent, up from 4.5 per cent
• Construction: 7.1 per cent, up from 6.5 per cent
• Wholesale and retail trade: 7.4 per cent, up from 4.9 per cent
• Accommodation and food services: 1 per cent, down from 1.8 per cent

Resilience throughout the rest of the year is “likely supported by the ongoing global artificial intelligence boom, robust financial sector performance and construction tailwinds”, said DBS senior economist Chua Han Teng, adding that these would outweigh energy-related and supply chain-related downside risks arising from geopolitical tensions.

In line with higher expectations for manufacturing, the full-year 2026 growth expectation for non-oil domestic exports surged to 17 per cent, from 6.1 per cent before. The forecast builds on a robust 27.4 per cent jump in Q2, led by AI-linked demand.

The survey also yielded lower forecasts for both headline and core inflation this year.

Economists see headline inflation coming in at 2.1 per cent – down from 2.3 per cent – and core inflation at 1.9 per cent down from 2 per cent in the previous round. These fall within the authorities’ 1.5 to 2.5 per cent forecast range for both measures.

This comes as energy-fuelled price increases pass through to a wider range of goods and services, said OCBC chief economist Selena Ling.

In Q2, headline and core inflation came in at 1.8 per cent and 1.5 per cent, respectively, both below the previous poll’s forecasts. For Q3, economists project that headline and core inflation will reach 2.5 per cent and 2.4 per cent, respectively.

Chua said that despite the effects of the Middle East conflict, overall inflationary pressures have been contained by the strong Singapore dollar nominal effective exchange rate (S$NEER), which has remained in the upper half of its appreciating policy band.

Domestic price pressures have also been manageable due to subdued unit labour cost growth and intense competition in the telecommunications sector.

Ling believes Q3 inflation “will still likely surprise a bit higher”. She also flagged “further legs to run” for manufacturing, given the AI capex boom.

“But I also believe that the bar for further MAS policy tightening is likely higher for October monetary policy statement, unless core inflation surprises significantly to the upside.”

Monetary-policy shifts

A majority of respondents still expect the central bank to stand pat October, but a larger share is now predicting a tightening move.

In the September survey, 45 per cent of respondents expect the central bank to tighten policy in October by increasing the slope of the S$NEER policy band. This is up from 30 per cent in the previous poll.

The remainder expect no change in the slope of the band.

Standard Chartered chief economist Edward Lee said the rise is “not surprising, considering MAS is still leaning against inflation and continued Middle East conflict keeping global oil prices elevated”, though the bank itself still predicts a hold, with the risk skewed towards a very slight tightening.

“While Singapore’s inflation outlook has become somewhat firmer... the latest data suggests that underlying price pressures remain contained,” he said, highlighting that July data undershot consensus forecasts despite rises.

In contrast, one respondent expects MAS to ease policy by lowering the level at which the S$NEER is centred in October’s meeting. In the previous survey, none of the respondents expected this level to be changed.

None of the economists predict any change to the width of the band.

Expectations of tightening via a slope-steepening have also increased for the January 2027 meeting, with one respondent now anticipating this move, up from none in the previous survey.

For the January meeting, none of the economists expect any changes to the midpoint or the width of the band.

Defying expectations of a hold, the central bank increased the rate of appreciation of the S$NEER policy band “very slightly” in July, in a smaller move than April’s steepening.

A prolonged or escalating conflict in the Middle East was cited as the top downside risk to Singapore’s economic outlook by 47.1 per cent of respondents.

This was also the most-cited risk overall, flagged by 70.6 per cent of respondents – though this was lower than the 85 per cent in June.

The bursting of the AI bubble was the next most-cited risk (64.7 per cent), followed by other geopolitical tensions such as trade tensions (41.2 per cent).

For upside risks, all respondents pointed to a sustained AI-driven upturn in the tech cycle – the same as in June – and placed it as the top upside risk.

De-escalation or resolution in the Middle East (35.5 per cent) was the next most-cited upside risk, followed by stronger-than-expected global or external growth (29.4 per cent).