TAKEAWAYS
Singapore closed 2025 with a stronger-than-expected economic performance, delivering resilience amid a volatile global macro environment and ongoing geopolitical fragmentation. Real GDP expanded by an estimated 4.8% year-on-year (YoY), well above initial projections and comfortably above Singapore’s longer-term trend. The upside surprise came on the back of firmer-than-anticipated electronics demand, a pickup in pharmaceuticals, tourism recovery, and resilient services and construction sectors.
While the global narrative in 2025 centred on the onslaught of US reciprocal tariffs and ongoing geopolitical manoeuvrings, the saving grace was that many central banks eased monetary policy and global demand proved more hardy as bilateral trade deals with the US materialised. Singapore also benefited from the global tech cycle, particularly the artificial intelligence (AI)-related boom, which drove enterprise demand for AI infrastructure, data processing, and advanced computing components. Pharmaceuticals within biomedical manufacturing was also a counter-cyclical stabiliser, while transport and logistics benefited from reshoring and supply chain diversification strategies across Asia.
On the services side, wholesale trade, finance, and professional services posted steady gains. Tourism and hospitality completed a multi-year recovery, with MICE (meetings, incentives, conferences, exhibitions) activity pipelines running hot. The sector’s rebound also helped support retail, transport, and food services. Meanwhile, modern services continued to grow, reinforcing Singapore’s longer-term positioning as a regional headquarters, capital market, and technology node.
The Monetary Authority of Singapore (MAS), which eased the SGD NEER (nominal effective exchange rate) slope twice in the first half of 2025 (1H 2025), shifted to a more neutral setting in 2H 2025 by maintaining the status quo as core inflation bottomed and is tipped to creep higher into 2026. Fiscal policy continued to support targeted schemes for productivity, innovation and workforce upgrading which also provided ballast against external soft spots. The labour market stayed relatively stable, reflecting ongoing skills demand in selected technology, logistics, healthcare and finance. Wage growth moderated from earlier peaks but remained positive in real terms, contributing to consumer resilience without generating excessive price pressures.
As Singapore enters 2026, the macro story is turning more nuanced. 2026 GDP growth is expected to moderate to around 2% YoY, with the Ministry of Trade and Industry projecting a 1–3% YoY range. The deceleration is less a reversal than a reversion toward longer-run potential, especially after two years of upside surprises. The external environment remains a key variable, with three macro drivers to watch: First, the global growth slowdown, particularly in the US and China who are both key trading partners for Singapore. Second, the AI-tech cycle, which may see a softening pace of gains as investors fret about high valuations and the sustainability of high capex (capital expenditures). Third, geopolitical fragmentation remains front and centre, as recent news headlines about Venezuela and Iran suggest that the world remains quintessentially unstable, with implications for trade, investments and supply chain recalibrations. The export-oriented nature of Singapore’s economy means these dynamics matter both cyclically and structurally.
Singapore’s domestic conditions are also likely to normalise. The labour market is expected to remain broadly firm, albeit job creation may cool somewhat. Consumer spending should sustain, supported by real income gains and still-low unemployment rates. Inflation is not expected to be a destabilising force in 2026, and MAS is likely to operate with steady policy settings at least for the upcoming January monetary policy review and likely also for April 2026 meeting, unless external shocks materialise. Should core inflation deviate from the MAS’ 2026 forecast range of 0.5–1.5% YoY, there is flexibility to re-steepen the SGD NEER slope if needed.
With stable macro fundamentals and still-elevated global uncertainty, the upcoming Budget 2026, on February 12, should see renewed support for strategic sectors and a continued policy emphasis on innovation, digitalisation, sustainability, and workforce transformation, which will shape Singapore’s medium-term competitiveness. With disruptive AI technologies, there is a pressing need to prepare the workforce and small and medium-sized enterprises to adopt and adapt to the necessary changes. These initiatives have become structural components of Singapore’s medium-term growth architecture rather than cyclical policy tools. Prime Minister Lawrence Wong’s New Year message had called for a “rethink, reset and refresh” of Singapore’s economic strategies even as the Singapore economy faces more obstacles to growth, and inflationary pressures may intensify. The upcoming first set of recommendations from the Economic Strategy Review (ERS) will therefore likely see a response at the Budget.
The Budget 2026 wish list so far centres on strengthening economic resilience while smoothing the transition to a higher-productivity and more innovation-driven economy. Businesses are calling for more support to cope with elevated costs, tight manpower and ongoing digital and green transformation mandates. Larger corporates are also emphasising stability in tax and regulatory frameworks as global capital competition intensifies. For the average man on the street, there remains concerns about cost-of-living pressures, housing affordability, ageing, retirement and healthcare needs. Ultimately, Budget 2026 expectations combine hopes for continued near-term cushioning amid the external headwinds, with sustained investments to ensure Singapore remains adaptive, inclusive and future-ready.
Separately, trade and regional Integration remain fundamental to Singapore’s success. The operationalisation of initiatives such as the Johor-Singapore Special Economic Zone could enhance regional supply chain linkages and investment flows. Broader ASEAN economic integration efforts will also matter, especially if polarisation and fragmentation of the global economic and trading landscape push more production, foreign direct investments, logistics, data, AI and other related infrastructure into Southeast Asia, including Singapore.
The 2026 policy and market landscape will likely be defined by the interplay of near-term headwinds and structural tailwinds. Singapore, as a small, open economy, is not immune to the softening global trade cycle and slowing US and Chinese economies, AI-related technology-related volatility and semiconductor competitive forces, and US-China competitive dynamics, especially in technology access and trade rules, for instance.
However, Singapore is also standing strong with strong institutions and governance, macro and political stability, deep financial markets and a diversified modern services base, continuing gains from digitalisation, infrastructure, innovation and workforce upgrading as well as strong tourism growth. Taken together, these forces position Singapore for continued expansion even amid global uncertainty. Growth may be more modest in 2026, but policy clarity, economic flexibility, and structural diversification provide resilience.
As such, we see 2026 as a transition year rather than a turning point. If the Singapore economy could outperform in the challenging years of 2024 and 2025 amid the economic and geopolitical tumult, 2026 may be the year the economy settles into a more balanced rhythm. Growth will slow but not stall, while inflation should remain contained and, as such, monetary and fiscal policy approaches will stay pragmatic.
The broader story is not cyclical fatigue but strategic positioning, as Singapore continues to invest in sectors and capabilities that matter for the coming decade – AI-related technology, sustainability, healthcare, connectivity and social inclusivity.
In a world defined by fragmentation, turbulence and competition for capital and talent, Singapore’s pragmatic blend of policy discipline and structural adaptability remains its most durable asset.
Selena Ling is Chief Economist & Head, OCBC Group Research.
