Singapore’s economic growth to stay resilient in 2026 on AI tailwinds, pace to moderate: MAS

[SINGAPORE] The Republic’s economic growth is expected to remain resilient in the near term, albeit at a more moderate pace, after a stronger-than-expected gross domestic product performance in the fourth quarter of 2025.

The near-term outlook is underpinned by tech-related activities, which the Monetary Authority of Singapore (MAS) projects to “continue to outperform”, supported by the global artificial intelligence (AI) tailwind.

In its macroeconomic review released on Thursday (Jan 29), after announcing earlier in the day that it would maintain its prevailing monetary policy stance, the central bank said non-technology sectors such as construction and financial services are also likely to experience firm growth.

In all, MAS assessed that the output gap should remain positive but narrow slightly to around 0.7 per cent of potential GDP this year. This is compared with 0.9 per cent in 2025.

Singapore’s GDP is estimated to have expanded by 4.8 per cent last year, up from 4.4 per cent in 2024 and exceeding the official forecast of “around 4 per cent”.

Q4 growth accelerated to 5.7 per cent year on year, from 4.3 per cent in the previous quarter.

The central bank said the larger-than-expected expansion “provided a favourable starting point for 2026”, noting that worldwide AI-related demand has been a key underlying driver of domestic production and exports.

Globally, MAS said growth is expected to ease modestly as the lagged effects of higher tariffs weigh on final demand and trade. Nevertheless, it added that the slowdown could be mitigated by supportive fiscal and monetary policies.

In the near term, it expects the global AI capital expenditure (capex) upcycle to continue apace, providing strong support for economies plugged into the electronics supply chain.

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AI boom

The central bank said the sustainability of the global AI boom will be a “key determinant” of Singapore’s overall GDP growth this year, alongside steady expansions in other sectors.

It noted that the AI investment boom in the United States has delivered a “powerful impulse to growth in Asia”, with capex heavily concentrated in data centres, advanced semiconductors, power grids and networking equipment.

“Global AI demand could turn out to be more robust than expected, with spillovers to Singapore,” the central bank said, pointing out that demand continues to outpace available capacity. 

As a result, it expects Singapore’s technology-related segments to “contribute a greater share to GDP growth” this year compared with 2025.

Separately, UOB associate economist Jester Koh said the latest monthly indicators, such as the purchasing managers’ index, suggest that AI-related tailwinds could persist into the first half of 2026.

MAS noted that the Republic’s exposure to the AI boom operates through two main channels. 

On the real economy front, Singapore is positioned primarily upstream, including in the manufacture of semiconductors and servers that support data centres and cloud service providers.

It also has a presence further downstream, where AI software firms serve corporate and household end-users.

Beyond the real economy, MAS noted that Singapore is also plugged into the AI ecosystem through the financial channel, as a hub for investment, financing and related services.

Nevertheless, the central bank cautioned that there are downside risks to the current strength in AI demand, including doubts over the technology’s ability to deliver anticipated productivity gains, which could trigger a pullback in AI-related capital expenditure. 

MAS also noted that AI-related companies have “less stretched valuations, and healthier balance sheets compared to technology firms in the dotcom era”.

OCBC’s chief economist Selena Ling described AI as both a boon and a bane: While it lifts growth through heavy investment and semiconductor demand, its high capital intensity risks widening inequality between those able to invest and those left behind.

Small and medium-sized enterprises “may be at the losing end if the policymakers do not step up and fill the gap to drive adoption, whether in the areas of AI, cybersecurity, advanced automation/robotics and data infrastructure”, she added.

Beyond the technology sectors, the central bank identified pockets of strength elsewhere in the economy.

For example, aerospace manufacturing is expected to benefit from sustained demand for aircraft maintenance and repair, while finance and insurance should continue to be supported by broadly accommodative economic and financial conditions.

MAS also pointed to a strong pipeline of public and private infrastructure projects – such as airport, port and rail developments – that will support construction activity.

Inflation outlook

On inflation, MAS raised its full-year 2026 forecasts for both core and headline inflation to 1 to 2 per cent, from 0.5 to 1.5 per cent previously.

It said that core inflation momentum is expected to rise closer to its trend pace in the quarters ahead, reflecting gradual increases in imported and domestic costs, as well as firmer demand conditions in line with a slightly positive output gap.

This should lift headline inflation, although the increase would be tempered by more modest accommodation inflation, due to the lagged pass-through of recent moderate rent increases.

MAS said inflation risks are skewed to the upside in the near term, as stronger global and domestic growth could push up wages and consumer spending, while geopolitical disruptions may raise import costs.

Although a sharp slowdown is less likely in the near term, the central bank cautioned that a risk of a major shock – such as heightened geopolitical or financial market stress – remains. This could weaken global demand and dampen spending at home.

Resilient labour market

As for the labour market, MAS said indicators suggest that overall conditions strengthened after a modest softening in the first half of 2025.

Based on advance estimates released by the Ministry of Manpower (MOM) on Thursday, total employment growth in 2025 came in at 57,300, up from 44,500 in 2024.

MAS added that the labour market is expected to remain resilient this year, with the resident unemployment rate staying relatively low.

MOM data showed that unemployment remained stable in 2025, with resident unemployment at 2.8 per cent and citizen unemployment at 3 per cent.

The central bank expects resident nominal wage growth to ease from that in 2025, though it will remain slightly above its historical average. 

In 2025, the median nominal monthly income was S$5,775. This represented a growth of 5 per cent from S$5,500 in 2024, slower than the 5.8 per cent growth recorded that year.

MAS said the slower pace of wage growth in 2026 is “broadly in line with still-robust productivity growth, implying that unit labour cost growth will be relatively contained”.

However, the central bank cautioned that stronger-than-expected labour demand could lead to a faster pace of unit labour cost increases, which may eventually pass through to consumer price inflation. 

It added that Singapore’s ageing population, which is tightening the resident labour supply, could further add to wage and price pressures.