Analysts split on Singapore's AI-led growth outlook

Strong semiconductor demand lifted growth above the government's full-year forecast pace.

Singapore's economy expanded 5.7% year-on-year (YoY) in the second quarter of 2026, driven almost entirely by AI-linked semiconductor demand, even as analysts diverge sharply on whether that momentum can hold through the second half of the year.

The advance estimate from the Ministry of Trade and Industry, released Tuesday, showed growth easing from an upwardly revised 6.3% in the first quarter, bringing first-half GDP growth to 6%, significantly above MTI's full-year forecast range of 2% to 4%.

Manufacturing led the expansion, surging 12.2% YoY in Q2, accelerating from 8% in Q1, driven by the electronics and precision engineering clusters on the back of strong AI-related demand for semiconductors and semiconductor manufacturing equipment. Non-oil domestic exports grew 38.4% YoY in May, the strongest expansion since December 2003, according to RHB.

The picture beyond manufacturing was considerably weaker. Construction eased to 6.2% from 12.9% in Q1, swinging to a quarter-on-quarter contraction, whilst services growth moderated to 4.6% YoY from 6.2%.

Wholesale and retail trade and transportation and storage contracted 0.3% quarter-on-quarter, according to UOB. Chemicals shrank outright on Middle East feedstock disruption. Inbound tourism fell to 83% of 2019 levels in April and May, down from 94% in Q1, UOB noted.

Zavier Wong, market analyst at eToro, said the Q2 print showed an economy being carried by a single export-facing cluster whilst its other domestic engines idled. He attributed the unevenness directly to the Middle East conflict, which he said never resolved as cleanly as the April ceasefire suggested, with energy markets pricing the risk on and off for almost the entire quarter.

"Singapore’s growth is now almost entirely a proxy for global AI capex. This comes at a moment when that capex cycle itself is drawing scrutiny over questions of sustainability. If chip demand can continue to hold strong, the second half looks fine. If it doesn't, though, it raises concerns that there is very little underneath it to absorb the hit," Wong said.

The uneven picture has produced a notable split amongst research houses on what the second half holds.

RHB maintained its full-year GDP growth forecast at 4%, warning that growth momentum is likely to moderate in H2 as the strong H1 performance is unlikely to be sustained amid a gradual easing in manufacturing and services activity. The house flagged persistent geopolitical uncertainty, higher fuel and transportation costs, and a softer labour market as headwinds that could erode real purchasing power and weigh on discretionary spending and retail consumption.

Nomura took a more constructive view, seeing upside risks to its already above-consensus full-year forecast of 4.6% and arguing that multiple growth engines remain intact. The house said it expected MTI to revise its official forecast range upward from the current 2% to 4% in the final Q2 GDP release in August, and that its equity team's view of a chip super cycle should support electronics exports in the coming months.

UOB raised its full-year forecast to 4.8% from 4% previously, pointing to recent indicators suggesting AI-related tailwinds could remain supportive through Q3. The electronics purchasing managers' index rose 0.3 points to 52.2 in June, with broad-based improvements across new export orders, employment and order backlogs, UOB noted.

All three houses identified the same key risk: a meaningful re-escalation in the Middle East conflict driving energy prices higher, prompting central banks to tighten monetary policy further and triggering a selloff in AI-related equities that causes firms to delay or cancel capital expenditure plans.

UOB assigned a 40% probability to MAS steepening its Singapore dollar nominal effective exchange rate slope by 50 basis points at its July or October 2026 meeting, up from 30% previously, following the re-escalation of the Middle East conflict over the weekend, with Brent crude rising above US$80 per barrel at the time of writing.

RHB and UOB both expect MAS to keep its policy parameters unchanged at the upcoming review before 31 July. Nomura said the July meeting was a close call but expected MAS to leave the door open to further tightening ahead.