MTI holds 2%-4% growth outlook despite Iran war risks

Strong AI chip demand helped push Q1 GDP growth to 6%.

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

The ministry upgraded its forecast in February from 1% to 3%, citing strong momentum from the artificial intelligence (AI) investment boom and supportive global fiscal and financial conditions.

The economy expanded 6% year-on-year in the first quarter, extending the 5.7% growth in the previous quarter.

However, GDP grew 1%, slower than the 1.3% expansion in the preceding quarter on a quarter-on-quarter seasonally adjusted basis.

Growth was attributed to the wholesale trade, manufacturing, and finance & insurance sectors.

MTI said robust AI-related demand supported growth in the machinery, equipment and supplies segment of wholesale trade, as well as the electronics and precision engineering clusters within manufacturing.

However, the ministry said the global outlook has worsened following the US-Israel-Iran 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, it added.

Sectors reliant on natural gas, crude oil, and related feedstocks have also seen their outlook weaken. Oil refineries and petrochemical crackers have reduced run rates, whilst several downstream petrochemical and speciality chemical firms have declared ‘force majeure’.

Moreover, trading volumes in the fuels and chemicals segment of wholesale trade have also declined, whilst higher fuel costs have dampened demand for air and water transport.

Despite these risks, sustained global AI-related capital spending is expected to continue supporting the electronics and precision engineering clusters through the rest of 2026.

Demand for AI-related semiconductors, including networking and memory chips used in data centres, is expected to remain strong throughout the year, MTI said.

It added that it will continue monitoring developments closely and adjust the GDP growth forecast over the course of the year if necessary.

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