Steady economy: Shoppers browse merchandise in a shopping mall on Orchard Road in Singapore. Economists expect the republic to perform better this year than the government’s own forecast. — Reuters
SINGAPORE: Singapore’s economy may have set a level of peak performance last year that will be hard to beat in 2026, but most analysts believe it can achieve enough economic growth this year to keep unemployment low and wages up.
The familiar alarm over US tariffs delivering a devastating blow to global trade and economic growth – sounded at the start of last year – is likely to turn out again to be overdone.
Still, for an export-driven economy, such as Singapore, swings in global demand for goods will always remain a vulnerability.
Indeed, when US President Donald Trump unveiled his sweeping tariffs on April 2, last year, raising the world’s largest economy’s average import duties to the highest since World War II, the quick conclusion was that a new era of protectionism was at hand.
But most of that gloom and doom did not really come to pass.
Thanks to Trump’s back-and-forth on his reciprocal tariff rates, importers in the United States and exporters in Asia and elsewhere took full advantage of the gaps between the threats and the actual imposition of tariffs by front-loading orders for goods.
And when the front-loading started to fade in the second quarter, artificial intelligence (AI)-driven demand for electronic hardware, such as semiconductors, put the Singapore economy on track for a 4% and above growth rate for a second year in a row.
The World Trade Organization (WTO) – which in April had estimated that global merchandise trade would shrink by 0.2% last year from 2.8% growth in 2024 – had to revise its forecast for last year up to 2.4% growth in October.
On Dec 31, Prime Minister Lawrence Wong announced that the Singapore economy grew 4.8% in 2025 – topping the government’s forecast of 4%.
It was the economy’s best performance since 2021’s 9.8%, when it bounced back from the pandemic-induced 2020 recession.
This year, however, the global economy will face an array of risks that could dampen growth.
For one thing, since most of the US tariffs were finally agreed upon and implemented in the latter half of last year, the WTO believes the full burden of the tariffs will make its mark this year.
Hence, the WTO now forecasts that growth in global goods trade will slow to just 0.5% this year.
The International Monetary Fund also sees global economic expansion at 3.1%, slower than the 3.2% last year.
Some analysts also believe that the AI boom will lose some steam due to the widening gap between huge investments and uncertain returns, as well as significant infrastructure challenges and massive energy needs.
Still, most economists expect Singapore’s economy to perform better this year than the lower end of the government’s growth forecast, given on Nov 21, of 1% to 3%.
HSBC and OCBC predict growth of 2%. The more optimistic growth estimates are British research firm Oxford Economics’ 3.8% and Japanese investment bank Nomura’s 3.7%.
HSBC’s Asean economist Yun Liu said Singapore’s electronics manufacturing has led the way, especially in the third quarter of last year, when the other key export and gross domestic product growth driver – pharmaceuticals – was subdued.
But for Singapore, Liu said, diversification is the key to its manufacturing outperformance.
For example, transport engineering continues to grow at a double-digit pace.
“This not only contributes to the manufacturing sector, but has also boosted related services sectors such as wholesale.”
Data from the fourth quarter of last year supports hope for continued growth momentum.
The economy grew 5.7% year-on-year (y-o-y) in the fourth quarter of last year, up sharply from the 4.3% expansion in the third quarter, according to the Trade and Industry Ministry’s advance estimates released on Jan 2.
Singapore’s non-oil domestic exports rose by 11.6% y-o-y in November – marking the second consecutive month of double-digit growth and exceeding consensus expectations of 6.8% by a wide margin.
There are other factors at work as well.
The substitution of US import demand to the Asean region from higher-tariff countries, such as China, will boost not only trade but also inflow of foreign investments.
Singapore’s being subject to the 10% baseline reciprocal tariff – lower than most of its peers in Asia – means a lot of those investments will be heading for the republic.
HSBC believes that after several years of subdued inflows of foreign direct investment (FDI), the US-China trade tensions since 2018 have been a game-changer for the whole Asean region.
Liu said the Asean-6 (Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam) now captures 14.5% of global FDI – with 65% of it going to Singapore.
Chua Hak Bin, the regional co-head of macro research at Maybank, believes, like most other analysts, that AI exuberance may cool down a bit but not fade away entirely.
In fact, he said, Singapore’s role in the AI supply chain will continue to deepen this year with the opening of Micron’s S$8.9bil or about US$6.9bil advanced packaging facility and UMC’s S$6.5bil wafer plant.
Beyond semiconductor manufacturing, Singapore is also attracting investments in AI research and development facilities and as a global test bed for new technologies, he said.
“The AI boom will continue to drive exports and investments in 2026, cushioning any shocks from higher US tariffs,” he said.
Since Singapore spends the most on AI and cloud in the Asean region, rising AI adoption will also buoy the information and communication (infocomm) services activity in the republic.
The enduring gains in Asia’s exports include the rising intra-regional trade as well.
Glen Hilton, Asia-Pacific chief executive and managing director of shipping and logistics firm DP World, believes that amid geopolitical tensions, economic uncertainties and shifting trade dynamics, “China Plus Many” is emerging as a key strategy for building resilience and ensuring risk diversification.
The approach builds on the “China Plus One” strategy, where companies expanded sourcing and manufacturing beyond China to an additional location.
“As today’s trade landscape becomes more complex, businesses are increasingly adopting a multi-hub approach, spreading operations across multiple countries to reduce risks and enhance agility,” Hilton told The Straits Times.
He said the China-Plus-Many strategy is not about moving out of China, but rather complementing its scale with capabilities in other regions, particularly South-East Asia.
And within South-East Asia, Singapore – already one of the world’s largest container transshipment hubs – sets the gold standard for trade facilitation at scale and is uniquely positioned to thrive in the China-Plus-Many landscape, he said.
Chua Han Teng, senior economist at DBS Bank, said that “while the above-trend growth of 4% and above over the past two years will be tough to replicate, the economy should demonstrate measured resilience this year”.
Singapore’s booming construction sector and robust modern services sector – that includes consulting, accounting and financial services, along with infocomm and media – will cushion the overall economy this year, he said. — The Straits Times/ANN
