Market Update: Economy to cool in 2026 as trade, manufacturing ease: analysts – Full Analysis

This follows the country’s highest GDP growth since 2021.

Singapore’s economy is expected to cool in 2026 after posting its highest growth since 2021, with projected expansion within the 1%–3% range set by the Ministry of Trade and Industry.

Growth in the manufacturing and trade-related sectors may move at a slower rate compared to last year, analysts said.

GDP growth is expected at 2.8%, following a 4.8% expansion in 2025, supported by artificial intelligence (AI)-related investment, infrastructure spending, and easing financial conditions, according to Maybank Research.

The economy ended 2025 strongly, with fourth-quarter GDP rising 5.7%, driven by a 15% surge in manufacturing output, particularly in electronics and biomedical production.

“Nonetheless, we expect the drag to be measured due to robust AI-driven electronics exports, substitution of US import demand from higher tariff countries, and likely exemptions from threatened pharmaceutical and semiconductor levies,” Maybank added.

Construction activity is also expected to strengthen on the back of large-scale transport, housing, and infrastructure projects. Falling interest rates are also seen supporting credit growth, capital markets, and real estate.

Meanwhile, momentum from late 2025 is likely to carry into early 2026, driven by resilient external demand, global monetary easing, and steady domestic consumption and investment, an RHB report said.

“We maintain our forecast for Singapore’s GDP growth at 3.0% year-on-year in 2026,” it said.

The bank expects non-oil domestic exports and industrial production to grow by 3% and 4%, respectively, this year. It also noted continued strength in manufacturing, particularly electronics linked to AI demand.

‘Trade headwinds’

However, RHB adopts a cautious outlook on broader trade, with uncertainty persisting in the US’s implementation of sectoral tariffs on semiconductors and pharmaceuticals.

“Additional risks in 2026 include a potential AI-driven market correction and renewed geopolitical tensions over rare-earth supplies,” it added.

In line with this, DBS Group Research forecasts a more cautious GDP growth of 1.8%. It said the economy’s above-trend expansion over the past two years would be difficult to replicate, given a higher base and a more challenging global trade environment.

“We expect the city-state’s trade-related activities to be restrained, in tandem with a weaker global trade cycle,” DBS said. It also anticipates that the electronics upcycle may mature as AI-related growth normalises.

However, the bank said modern services and construction should help cushion the slowdown, with large infrastructure projects and steady activity in finance, information services, and professional services supporting overall output.

“We expect building activity to be lifted by major multi-year transport infrastructure investments, hospitality project expansions, and housing rollout,” DBS added.