Singapore faces uneven growth in 2026 amidst AI export strength and external risks

NODX growth is still attributed to AI-related demand.

Singapore enters 2026 from a position of strong but increasingly uneven economic momentum, where AI-driven export strength supports growth, but external risks and inflation pressures are expected to shape a moderation in pace, according to analysts

McKinsey reported fourth-quarter GDP growth of 6.9% year on year, up from 4.6% in the previous quarter, while full-year growth reached 5%, exceeding the government’s forecast of 4% but easing from 5.3% in 2024. Nomura separately forecasts GDP growth of 3.7% in 2026.

McKinsey attributed the 2025 expansion to broad-based sector growth, with manufacturing rising 18.8% in the fourth quarter, driven by AI-related electronics alongside biomedical manufacturing and transport engineering.

Wholesale trade, finance and insurance also contributed, whilst full-year manufacturing growth reached 8.7% compared to 3.8% in 2024.

Non-oil domestic exports (NODX) grew 12.7% in the fourth quarter, reversing a 3.4% contraction in the previous quarter. Full-year NODX growth stood at 4.8%, compared to 0.2% in 2024. Total merchandise trade rose 14.5% in the fourth quarter, supported by electronics exports including semiconductors, servers, integrated circuits and personal computers. McKinsey raised its 2026 NODX outlook to 2% to 4% from 0% to 2%.

Foreign direct investment net inflows reached $58.6b in the fourth quarter, up from $42.2b previously, according to McKinsey. Electronics and biomedical manufacturing accounted for 63.8% of total investments, with China, Europe, Japan and the United States contributing around three-quarters of inflows.

Private consumption growth rose to 3.9% in the fourth quarter from 3.6% previously, supported by higher transport and recreation spending. The unemployment rate held at 2%, whilst retrenchments increased to 14,490 in 2025 from 13,020 in 2024, alongside softer hiring sentiment in the fourth quarter.

Inflation averaged 0.9% in 2025, down from 2.4% in 2024, but rose to 1.2% in the fourth quarter from 0.6% in the third quarter. Increases were driven mainly by healthcare and transport, offset by declines in categories such as clothing and footwear and recreation and culture. The Monetary Authority of Singapore expects inflation to remain in the 1% to 2% range in 2026.

The Singapore dollar appreciated 6.2% against the US dollar in 2025, reaching an 11-year high by January 2026, according to McKinsey.

The Ministry of Trade and Industry revised its 2026 GDP forecast to 2% to 4% from 1% to 3%, citing AI investment, electronics strength and a more supportive global outlook, while noting moderation risks from tariffs and geopolitical tensions.

Nomura highlights fiscal flexibility, including an expansionary FY26 budget that remains in overall surplus and a $1b support package equal to 0.1% of GDP. It notes frontloaded measures to offset rising energy costs and support vulnerable sectors.

It also highlights inflation risks from energy shocks, higher food costs linked to fertiliser and shipping pressures, and potential second-round effects from tighter labour conditions. MAS is expected to continue using the exchange rate policy to manage imported inflation.