Singapore raises 2026 growth forecast to 4.5-5.5%; Q2 growth revised up to 5.9%

[SINGAPORE] The government has upgraded its 2026 economic growth forecast for Singapore to a range of 4.5 to 5.5 per cent – up from the previous forecast of 2 to 4 per cent – as an accelerating global boom in artificial intelligence investment lifts the trade-reliant economy’s prospects for the rest of the year.

The revision, announced by the Ministry of Trade and Industry (MTI) on Tuesday (Aug 11) morning, 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.

In the second quarter alone, gross domestic product grew 5.9 per cent from a year earlier, easing slightly from the 6.3 per cent pace notched in the first quarter – but still comfortably ahead of the growth path the ministry had pencilled in earlier this year.

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.

The final Q2 figure marks an upward revision from the advance estimate of 5.7 per cent. The 0.2 percentage point upgrade reflects stronger output than initial numbers in the manufacturing and services sectors once more complete survey data came in.

Manufacturing and finance lead the way

Growth in Q2 was underpinned by the manufacturing, wholesale trade, and finance and insurance sectors, MTI said.

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 here.

The wholesale trade sector expanded 8.3 per cent, buoyed by the machinery, equipment and supplies segment, while finance and insurance rose 6.2 per cent on the back of strong credit growth and fee income in the banking segment, alongside a double-digit increase in fund management fees and commissions.

The F&B services sector was the notable laggard, contracting 1.5 per cent year on year as a pickup in outbound travel by residents and softer visitor arrivals weighed on local spending.

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AI tailwind outweighs Middle East risks

MTI attributed the forecast upgrade to two offsetting global forces. On one hand, the fallout from the US-Israel-Iran conflict – which had prompted the ministry to hold its forecast steady in May – has proven less severe than initially feared.

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 kept a lid on prices, the ministry said.

On the other hand, the global AI investment boom has been stronger than expected, providing what MTI described as “significant tailwinds” to AI-related production and exports worldwide – a trend it expects to intensify in the second half of the year.

Speaking to media after the figures were published, MTI permanent secretary Beh Swan Gin said that he does not believe the Republic is over-reliant on AI growth.

The support is not specific to AI producers, he added, noting that component suppliers are also benefiting.

The improved external backdrop has also lifted growth forecasts for regional peers.

MTI noted that 2026 GDP forecasts for Taiwan and South Korea have been raised on the back of their AI-linked export exposure, as have those for most key South-east Asian economies.

China’s outlook, by contrast, remains broadly unchanged, with growth there expected to slow in H2 amid easing export growth and soft domestic consumption.

MTI flagged three downside risks that could still derail the improved outlook – a further escalation of the Middle East conflict that reignites energy price spikes; additional US tariff actions that dent business and household sentiment; and a sharp correction in financial markets should investor enthusiasm for AI-related capital spending sour.

But for now, Dr Beh does not expect the 12.5 per cent US tariff to have a significant impact on Singapore. About S$9.4 billion worth of the city-state’s domestic exports to the US annually – or about one-third of its trade – are affected by this new tariff, with the remainder being exempted, he noted.

Domestically, sectors tied to the AI-driven technology cycle – electronics, precision engineering, and information and communications – are expected to see an improved outlook for the rest of the year.

Those exposed to Middle East-related supply disruptions, such as chemicals and the water and air transport segments, are likely to stay under pressure from elevated fuel and feedstock costs.

Consumer-facing sectors such as retail trade and F&B services may continue to feel the pinch from dampened sentiment amid inflationary pressures, though government support measures such as the Community Development Council Vouchers are expected to cushion some of the impact, MTI said.