Singapore shows "better-than-expected" Q1 economic performance, but downside risks have risen significantly

Despite maintaining its 2% – 4% GDP growth projection, MTI cautioned that external and domestic uncertainties could weigh more heavily on the economy in the months ahead.

Singapore has kept its 2026 GDP growth forecast unchanged at 2% – 4%, even as the Ministry of Trade and Industry (MTI) warned that risks to the outlook have risen significantly.

MTI said the economy’s outlook has weakened since February, taking into account the latest global and domestic developments, including heightened uncertainty linked to the US-Israel-Iran conflict. However, stronger-than-expected economic performance in the first quarter has helped support the existing full-year growth projection.

Singapore's economic performance in Q1 2026

Singapore’s economy grew 6% year-on-year (y-o-y) in the first quarter of 2026, slightly faster than the 5.7% expansion recorded in the previous quarter. On a seasonally adjusted quarter-on-quarter (q-o-q) basis, however, growth eased to "1% – 3%" in the preceding quarter.

The first-quarter expansion was mainly supported by wholesale trade, manufacturing, and finance and insurance. AI-related demand continued to boost activity in machinery, equipment and supplies within wholesale trade, as well as the electronics and precision engineering clusters in manufacturing.

The finance and insurance sector also posted broad-based growth, supported by steady performance in banking, fund management and securities dealing.

However, some segments came under pressure from higher prices and shortages of crude oil and related products linked to the US-Israel-Iran conflict. This was evident in the fuels & chemicals segment of wholesale trade sector and the chemicals cluster within manufacturing sector.

Singapore's economic outlook for 2026

In February, MTI raised Singapore’s 2026 GDP growth forecast to "2% – 4%", up from "1% – 3%". The revision was based on the expectation seen in the fourth quarter of 2025, driven largely by the AI investment boom, would continue into 2026.

At the time, global growth was also expected to be supported by expansionary fiscal policies in major economies and looser global financial conditions. Since then, however, the outlook has weakened following the onset of the US-Israel-Iran conflict.

Disruptions to energy supplies and other key inputs, including fertiliser and aluminium, due to the blockade of the Strait of Hormuz have pushed up global energy and input costs. This has added to inflationary pressures, which are expected to weigh on real incomes and consumer spending, while also tightening global financial conditions.

These pressures are likely to drag on global economic activity for the rest of the year. Still, AI-related demand remains strong and is expected to continue supporting regional growth. MTI also said the outlook for US tariffs is broadly unchanged from February, with the US expected to restore reciprocal tariff rates in the second half of 2026 through other trade policy tools.

Against this backdrop, Singapore’s external demand outlook for the year has weakened compared with MTI’s assessment in February.

Sectoral performance in Q1 2026

Singapore’s growth in the first quarter was supported by a broad mix of sectors, although the pace varied across the economy.

The construction sector posted the fastest growth, expanding 11.8% y-o-y, a sharp acceleration from 4.6% in the fourth quarter of 2025. The improvement was supported by higher output from both public and private sector projects. On a seasonally adjusted q-o-q basis, construction grew 6.3%, well above the 0.2% increase in the previous quarter.

Momentum was also strong in wholesale trade, which grew 11.7% y-o-y, extending the 9.9% expansion recorded in the preceding quarter. The sector was lifted mainly by the machinery, equipment and supplies segment, as wholesale volumes of telecommunications and computers, as well as electronic components, rose strongly. However, the gains were not evenly spread. The fuels and chemicals segment and the “others” segment both contracted, with the former weighed down by petroleum and petroleum products.

On a seasonally adjusted q-o-q basis, wholesale trade expanded 2.3%, moderating from 3.5% growth in the fourth quarter.

The manufacturing sector also remained a key contributor, growing 7.9% y-o-y in the first quarter. This followed an even stronger 11.4% expansion in the previous quarter. Growth was driven by the electronics, precision engineering, transport engineering and general manufacturing clusters, although contractions in the biomedical manufacturing and chemicals clusters weighed on the overall performance. On a seasonally adjusted q-o-q basis, manufacturing shrank 2.3%, reversing from 4.5% growth in the preceding quarter.

Tourism-related activity continued to lend support to the economy. The accommodation sector grew 6.6% y-o-y, unchanged from the pace recorded in the previous quarter. Growth was supported by higher total gross lettings in hotels, particularly in the luxury and mid-tier hotel segments. On a seasonally adjusted q-o-q basis, accommodation expanded 2.3%, extending the 1.1% growth seen in the fourth quarter.

Meanwhile, the finance and insurance sector gained pace, expanding 5.7% y-o-y, faster than the 3.7% growth recorded in the preceding quarter. Growth was broad-based, with steady performance across banking, fund management and securities dealing. These segments saw robust growth in net fees and commissions as investors hedged and reallocated portfolios in response to the Middle East conflict. On a seasonally adjusted q-o-q basis, the sector grew 1.0%, moderating from 5.4% growth in the fourth quarter.

Growth in the information and communications sector was more moderate. The sector expanded 4.3% y-o-y, easing from 5.2% in the fourth quarter. Growth was driven by the IT and information services segment, supported by internet search engine activities, as well as the “others” segment, which was supported by games publishing activities. However, on a seasonally adjusted q-o-q basis, the sector shrank 8.5%, reversing from 0.7% growth in the previous quarter.

Other parts of the services economy continued to expand. The other services industries grew 3.6% y-o-y, extending the 3.3% expansion in the fourth quarter. Growth was broad-based, led by the arts, entertainment and recreation sector, as well as health and social services. On a seasonally adjusted q-o-q basis, other services industries grew 0.7%, up from 0.1% in the preceding quarter.

The real estate sector also remained in positive territory, growing 3.1% y-o-y, after a 3.6% expansion in the previous quarter. Activity picked up across the private residential, commercial and industrial property segments. On a seasonally adjusted q-o-q basis, the sector expanded 1.0%, faster than the 0.6% growth recorded in the preceding quarter.

Similarly, the professional services sector improved, expanding 2.6% y-o-y, compared with 1.9% growth in the fourth quarter. The increase was mainly supported by the other professional, scientific and technical services segment, as well as head offices and business representative offices. On a seasonally adjusted q-o-q basis, professional services grew 1.8%, reversing from a 0.8% contraction in the previous quarter.

For the retail trade sector, the industry grew 2.6% y-o-y, following a 2.3% expansion in the previous quarter. Growth was supported by increases in both non-motor vehicular and motor vehicular sales volumes. On a seasonally adjusted quarter-on-quarter basis, the sector expanded 1.3%, reversing from a 0.3% contraction in the preceding quarter.

Growth in transportation and storage slowed to 1.5% y-o-y, from 2.1% in the fourth quarter. Air transport continued to expand, with Changi Airport handling more passengers on a year-on-year basis. Water transport also grew, although at a slower pace than in the previous quarter, supported by higher container throughput and sea cargo handled at Singapore’s ports. On a seasonally adjusted q-o-q basis, the sector expanded 1.4%, reversing from a 0.6% contraction in the previous quarter.

The administrative and support services sector also grew 1.4% y-o-y, picking up from 0.9% growth in the preceding quarter. Both the rental and leasing segment and the other administrative and support services segment expanded during the quarter. On a seasonally adjusted q-o-q basis, the sector grew 0.5%, reversing from a 0.5% contraction in the previous quarter.

At the lower end of the growth range, the food and beverage services sector expanded 0.4% y-o-y, following 0.2% growth in the previous quarter. Higher sales volumes at food caterers, cafes and fast-food outlets helped offset declines at food courts and other eating places, as well as restaurants. On a seasonally adjusted q-o-q basis, the sector grew 1.0%, easing from 1.3% growth in the preceding quarter.

Economic outlook around the world for 2026

United States

In the US, GDP growth in 2026 is expected to come in weaker than projected in February. Higher inflation is likely to weigh on consumption and compress corporate profit margins, putting pressure on overall growth.

Eurozone

Over in the Eurozone’s, the market's 2026 GDP growth forecast has also been downgraded. Intensifying cost pressures and weaker consumer sentiment are expected to weigh on domestic demand, while slower global demand is likely to affect exports.

China

China’s outlook remained broadly unchanged from February. GDP growth in 2026 is expected to moderate from 2025 levels, mainly due to softer export growth amid weaker external demand.

Southeast Asia

Various key Southeast Asian economies are also expected to see GDP growth supported by resilient demand for AI-related exports. However, non-AI-related exports are likely to be weighed down by softer global demand.

Global downside risks

Downside risks to the global economy have risen significantly since February. 

First, prolonged disruptions to global supplies of energy and other key inputs due to the Middle East conflict could lead to a sustained rise in energy, commodity and input prices, causing global growth to slow considerably.

Second, a renewed escalation in US tariff actions could further hurt business and household sentiment, weighing on investment and spending across many economies.

Third, an escalation in risk-off sentiment, or a sudden pullback in global AI-related capital spending, could trigger sharp corrections in global financial markets, with potential spillovers to broader economic activity.

Against this backdrop, the outlook for the sectors in Singapore's economy has weakened for those that depend directly on natural gas, crude oil and related derivatives as feedstock, as well as outward-oriented sectors affected by energy commodity shortages and higher fuel costs.

Energy- and oil-related sectors

Oil refineries and petrochemical crackers have already reduced their run rates, while several downstream petrochemical and specialty chemical firms have declared force majeure.

Disruptions to energy commodity supplies have also reduced trading volumes in the fuels and chemicals segment of the wholesale trade sector. 

Transport

Similarly, higher fuel costs have weakened the demand outlook for the air and water transport segments within the transportation and storage sector.

Manufacturing and AI-related activity

AI-related capital spending remains a key growth driver for Singapore’s electronics and precision engineering clusters. Demand for AI-related semiconductors, including networking and memory chips used in data centres, is expected to stay robust for the rest of 2026. Stronger AI-related capital expenditure is also expected to support demand for semiconductor equipment.

This is expected to have positive spillover effects on the machinery, equipment and supplies segment of the wholesale trade sector.

Services

Among the outward-oriented services sectors, the information and communications sector is expected to record steady growth, supported by continued enterprise demand for AI-enabled and other digital solutions.

The finance and insurance sector could face pressure from tighter global financial conditions as inflationary pressures rise. However, capital inflows from global investors diversifying their portfolios amid persistent market volatility could provide some support.

Domestic sectors

Construction activity is expected to remain supported by public construction works. 

The real estate sector is expected to benefit from new private residential property launches and resilient demand from owner-occupiers.

Retail trade and food and beverage services could face pressure from weaker consumer sentiment. However, the earlier disbursement of CDC Vouchers in June 2026 and the enhancement to the Budget 2026 Cost-of-Living Special Payment are expected to help cushion the impact.

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Lead image & infographics / MTI