Singapore economy to stay firm for rest of 2026 as AI boom cushions oil shocks, new US tariff: MAS

Singapore economy to stay firm for rest of 2026 as AI boom cushions oil shocks, new US tariff: MAS Singapore's tech sector continued to grow faster than usual and is expected to drive most of the country's economic growth this year. SINGAPORE: The Singapore economy is expected to remain on a firm growth trajectory for the rest of 2026, with the global artificial intelligence boom helping to cushion the impact of higher energy costs arising from the Middle East conflict and a new wave of US import tariffs effective from Jul 24. The Monetary Authority of Singapore (MAS) said in its latest quarterly macroeconomic review on Monday (Jul 27) that Singapore's technology-related sectors continued to expand faster than expected as a result of resilient global AI demand. The electronics segment grew on the back of strong AI-driven demand for memory chips and server infrastructure, while growth was also observed in the infocomm and consumer electronics sectors as firms ramped up production to meet increased demand for AI servers and related products. The technology-related segments are projected to account for the bulk of the economy’s expansion for the full year, up from around 50 per cent in 2025, with momentum from the AI-driven tech cycle more than offsetting headwinds from the Middle East crisis, said the central bank. However, it also cautioned that the current valuations of AI could be overly optimistic if earnings fail to meet investors' expectations. That said, given the continued strength of AI-related earnings and long-term investments of major large cloud service providers, or hyperscalers, the strong growth in the AI sector could persist for some time before fundamentals are tested, MAS said in the report. Singapore's economy grew 5.7 per cent year-on-year from the April to June period, which was slightly slower than the 6.3 per cent growth in the preceding quarter, according to advance estimates the central bank released on Jul 14. Overall, MAS said on Monday that the positive output gap is now forecast to widen to 0.7 per cent of potential gross domestic product (GDP) in 2026. This indicates that economic activity is expected to rise above the economy's potential. Nevertheless, renewed fighting in the Middle East has increased concerns over energy supplies. MAS noted in its report that energy prices are expected to remain higher than pre-conflict levels. "While the risk of a severe supply disruption has receded, lingering concerns over the durability of the ceasefire is likely to sustain a geopolitical premium in the pricing of energy products," said MAS, adding that damaged energy infrastructure in the Middle East could take time to be restored, slowing the recovery in production capacity. The Trump administration unveiled new tariffs targeting 60 trading partners that took effect last Friday, including a new 12.5 per cent levy on Singapore's exports to the US. About one-third of the country’s domestic shipments to the US are set to be affected. On this, MAS said the adverse impact of the raised tariff on Singapore would be cushioned by export diversification and the boom in tariff-exempt electronics exports. However, the US' trade policy remains a "source of uncertainty" for the global outlook, said MAS. While the immediate impact of the tariffs is likely to be limited, the possibility of further measures could weigh at the margins on trade, investment and business confidence in the coming quarters. The macroeconomic review comes after MAS tightened monetary policy for the second time in a row on Monday morning. A tighter policy stance strengthens the Singapore dollar, and can help to reduce imported inflation. In April, the central bank had tightened the policy and increased its inflation forecast for 2026 to 1.5 to 2.5 per cent. MAS core inflation, which excludes accommodation and private transport, is projected to pick up from July and remain elevated into early next year, it said in its monetary policy statement. AI BOOM, MIDDLE EAST CONFLICT In its report, MAS said the real electronics domestic exports had risen sharply and contributed significantly to Singapore's overall domestic export growth. This was led by strong gains to Taiwan, South Korea and the US, even as non-electronics products such as pharmaceuticals and other manufactured articles also grew strongly. The rapid growth and large economic weight of the technology-related sectors - accounting for 22 per cent of nominal GDP in 2025 - could support the broader economy, including through boosting incomes in adjacent services, firmer business sentiment, and improved confidence in the broader economic outlook, said MAS. The Middle East conflict had a discernible but contained impact on Singapore's economy, it added. The conflict, which began in the first quarter of 2026, posed a drag on the oil-related sectors in the second quarter, though this was cushioned by robust activity in the technology-related sectors. The affected oil-related sectors, namely chemicals manufacturing, utilities, and wholesale of fuels and chemicals, make up a narrower subset of industries in the energy-dependent sectors MAS had identified in its April review. Disruptions in global feedstock supply forced local petroleum-refining and petrochemical firms to operate at lower run rates; real domestic exports of oil-related products also contracted. But oil-related re-exports rose markedly in the second quarter, particularly to Malaysia and Indonesia. This likely reflected heightened demand from regional markets seeking alternative supply sources amid Middle East supply disruptions, and Singapore playing an established role as a regional redistribution hub in the oil supply chain. The energy-dependent transport and storage sector was supported by robust air cargo traffic, underpinned by an uptick in the flow of high-tech goods. LABOUR MARKET TO REMAIN STABLE As for the labour market, conditions are expected to remain broadly stable this year, supported by firm economic activity. Resident employment expanded at a faster pace in the first quarter compared to the fourth quarter last year, driven by stronger hiring in sectors such as wholesale trade and other transportation and storage. Labour demand was also firm in domestic-oriented services sectors which include real estate, retail trade and food and beverage services. Although total employment growth slowed compared to Q4 2025, this was largely due to a seasonal decline in construction employment growth and, consequently, more moderate gains in non-resident employment. Despite the onset of the Middle East conflict from late February, job growth remained resilient, said MAS. Firms did however pull back on hiring plans amid the conflict, reflected in the job vacancy rate and job vacancy to unemployed persons ratio moderating in the first quarter. Amid still-heightened uncertainty, most employment outlook surveys point to smaller headcount expansions in recent months, even as the Economic Development Board's survey on manufacturing firms suggested stronger hiring intentions. Still, labour demand is expected to be supported by sustained value added growth across most sectors in the latter half of the year, said MAS. Resident job growth should continue to be supported by cyclical demand in the trade-related sectors and structural manpower needs in health and social services, public administration and education, the report said. Non-resident workforce growth should also continue, although the pace of expansion could ease after the significant gains in recent years, especially in the construction sector. More balanced labour demand and supply conditions should bring wage growth close to historical norms this year, said MAS. The historical average of wage growth from 2010 to 2019 is 3.7 per cent. Some parts of the labour market linked to the ongoing technology-driven expansion, such as manufacturing and wholesale trade, could see relatively firmer wage increases.