AI boom shields Singapore 2026 outlook from Middle East, tariff headwinds

Meanwhile, the central bank could shift policy settings later in the year if energy prices keep climbing.

Sustained artificial intelligence (AI) tailwinds are set to anchor Singapore's 2026 growth after a stronger-than-expected first quarter (Q1), even as the Middle East conflict and US tariff uncertainty cloud the outlook.

In its latest analysis, UOB Global Economics and Markets Research raised its 2026 gross domestic product (GDP) forecast for Singapore to 3.2% from 2.5%, citing Q1 outperformance and sustained AI tailwinds.

Latest government data showed that the economy expanded 6% year-on-year in Q1, extending the 5.7% growth in the previous quarter. 

Amongst sectors, UOB noted that wholesale trade was an outperformer, driven by a surge in output in the machinery, equipment & supplies segment. This reflected strong wholesale volumes of telecommunications equipment, computers, and electronic components, which outweighed contraction in fuels & chemicals, where petroleum products felt the early hit from Middle East disruptions.

Meanwhile, Barnabas Gan, group chief economist & head of market research at RHB Bank, maintained the bank's 2026 GDP growth projection at 3.0% despite ongoing global uncertainties.

"At this stage, we maintain our base-case assumption of a sustained ceasefire between the US, Iran, and Israel, with no further escalation in geopolitical risk premiums," Gan said in a new analysis.

If tensions persist into the second half of the year, "downside risks could materialise, potentially slowing Singapore’s GDP growth to around 1.0% to 1.5% under a more adverse scenario."

"Accordingly, we adopt a more cautious outlook on the external sector and revise our growth projections downward should the conflicts persist," Gan said.

A sharp reversal in AI investment could also weigh on Singapore's economy by reducing demand for semiconductor and electronics exports, RHB warned, citing the country's heavy exposure to the global E&E cycle.

As a part of the effort to refresh Singapore's national AI strategy, Minister for Digital Development and Information Josephine Teo has said that the government will launch missions in advanced manufacturing, financial services, connectivity, and healthcare, which collectively make up over 40% of GDP.

The Ministry of Trade and Industry (MTI) has also maintained its 2026 GDP growth forecast at 2% to 4%, although downside risks have risen amidst the ongoing US-Israel-Iran conflict.

The ministry noted a worsened global economic outlook due to the conflict. Disruptions to energy and key input supplies, including fertiliser and aluminium, due to the blockade of the Strait of Hormuz have pushed up global energy and input costs.

UOB said that its “forecast is subject to significant left-tail risks, contingent on the duration and extent of the supply disruptions.”

Meanwhile, Gan said MAS is seen "to keep its policy settings unchanged in July, although the balance of risks points toward further tightening later in the year should Middle East tensions continue to push up global energy prices."