Singapore raises 2025 growth forecast to ‘around 4%’, expects 1-3% growth in 2026

[SINGAPORE] The Republic’s official growth forecast for 2025 was upgraded to “around 4 per cent” on Friday (Nov 21), from an earlier estimate of 1.5 to 2.5 per cent.

The growth in 2026, however, is expected to be a slower 1 to 3 per cent.

These numbers came on the back of better-than-expected year-on-year growth in the third quarter, driven partly by the demand for semiconductors used in artificial intelligence (AI), said the Ministry of Trade and Industry (MTI).

Q3 growth was revised to 4.2 per cent, up from the advance estimate of 2.9 per cent, which was largely based on data in July and August. This was an extension of Q2’s 4.7 per cent growth.

With the updated Q3 figure, growth for the first three quarters averaged 4.3 per cent year on year.

This year’s strong performance partly reflects front-loading of trade before the US tariffs kicked in, said MTI’s chief economist Yong Yik Wei on Friday.

But in 2026, US tariffs will drag more on growth, as the front-loading effects fade and the tariffs would have “a full year’s worth” of impact, she added.

On a quarter-on-quarter, seasonally adjusted basis, the economy grew 2.4 per cent in Q3, faster than the advance estimate of 1.3 per cent and up from Q2’s 1.7 per cent growth.

“Better than expected” growth

MTI had upgraded its 2025 forecast in August, on account of strong front-loading in Q2 and an improved outlook as trade tensions eased. At that time, MTI expected global growth to slow down in the second half of the year.

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But on Friday, MTI noted that global economic conditions have proven more resilient than forecast. In particular, Q3 growth in most of Singapore’s trading partners was better than expected.

Export growth in regional economies such as China and Vietnam remained robust amid ongoing trade diversion and supply-chain adjustments.

The stronger-than-anticipated AI boom also supported US growth and regional demand for AI-related semiconductors.

MTI permanent secretary Beh Swan Gin noted that trade tensions have eased further in recent months, with the US-China trade truce extended to November 2026 and the US tariff rate on China reduced. The rollout of sectoral tariffs on semiconductors and pharmaceuticals was also slower than anticipated.

For the rest of 2025, demand for AI-related electronics should continue to support Singapore’s manufacturing and wholesale trade sectors, said Dr Beh.

Growth in outward-oriented services – such as information and communications, professional services and finance and insurance – is also projected to remain resilient.

Slower 2026

For 2026, however, growth in most key trading partners is likely to be lower, as the impact of the US’ tariffs is expected to be more pronounced, said Dr Beh. In particular, China’s growth is forecast to moderate.

He also flagged downside risks. Global economic uncertainty has receded but remains elevated, and could surge if tariffs re-rescalate. This could cause businesses and households to pull back on hiring, investment and spending.

An escalation in risk-off sentiments could also trigger sharp corrections in global financial markets, with potential spillovers to broader growth.

Against this backdrop, Singapore’s manufacturing and trade-related services sectors are expected to grow more slowly in 2026, said Dr Beh.

In manufacturing, electronics is expected to be supported by demand for AI-related semiconductors, servers and server-related products. But semiconductor equipment makers in the precision-engineering cluster could face near-term headwinds.

Asked about the assumptions behind the range of the 2026 forecast, Dr Beh said that while AI-related demand is expected to be resilient, “there will be a range on how sustainable this growth in demand will be”.

The forecast range accounts for this, as well as spillovers from AI-related demand, he said.

For outward-oriented services – such as information and communications or finance and insurance – where much depends on regional growth, the forecast reflects a range of expectations there, he added.

MTI said that among domestically-oriented sectors, construction is forecast to continue growing, but growth in consumer-facing sectors – such as retail trade as well as food and beverage (F&B) services – may remain subdued.

Sectoral performance

On a year-on-year basis, Singapore’s Q3 growth was mainly driven by manufacturing, wholesale trade, as well as finance and insurance.

Of the 13 sectors, only F&B services recorded a year-on-year contraction in Q3. The sector shrank by 1.2 per cent, extending the 0.5 per cent fall in the preceding quarter.

Manufacturing grew 5 per cent, down marginally from 5.1 per cent in the previous quarter. Output in all clusters rose, except for general manufacturing.

In particular, the electronics cluster expanded with a significant increase in demand for AI-related semiconductors – which also underpinned strong export numbers in October – as well as servers and server-related products.

On a quarter-on-quarter, seasonally adjusted basis, manufacturing grew 11.3 per cent, a reversal from the 0.6 per cent contraction in the preceding quarter.

Wholesale trade grew 3.9 per cent, though this was down from 6.9 per cent before. Finance and insurance grew 4.6 per cent, extending the previous quarter’s 4.2 per cent growth.

Growth also slowed in construction (3.6 per cent, from 6.2 per cent before), transportation and storage (2.3 per cent, from 3.8 per cent) and administrative and support services (2.4 per cent, from 2.6 per cent).