Singapore's economy expanded by six percent year-on-year in the first quarter of 2026, primarily driven by surging demand for artificial intelligence chips. The Ministry of Trade and Industry initially maintained its forecast for 2026 economic expansion between 2.0 and 4.0 percent, citing better-than-expected first-quarter growth. However, Prime Minister Lawrence Wong warned on Monday, 2026-07-28, that the city-state faces risks of slower growth and higher inflation in the second half of the year.
The anticipated slowdown is attributed to the ongoing fallout from the Middle East war, particularly disruptions to shipping in the Strait of Hormuz, which are expected to lead to higher oil prices. Wong noted that the full impact of the conflict, including the US- and Israeli-led war against Iran that began on February 28, has not yet been reflected in economic data. He emphasized that while the first quarter's performance was strong, reflecting the economy's diversity, the outlook remains uncertain with more pressures on growth and inflation expected.
Economists have also highlighted the AI-related boom as the largest growth driver, but also the biggest risk if there's a sharp correction. Although new US tariffs, an additional 12.5 percent on Singapore's exports to the US announced after a Section 301 probe, are expected to have a limited impact due to exemptions for semiconductors and electronics, the broader AI market correction remains a significant concern. Maybank maintains its 2026 growth forecast for Singapore at 4.8 percent, projecting a slower 3.7 percent growth in the second half, while OCBC's chief economist Selena Ling keeps her 4.3 percent forecast, noting that it's too early to fully assess the tariff impacts.
