Singapore warns of slower 2026 growth after third-quarter GDP beats expectations
News Summary
Singapore's economy expanded by 2.9% year-on-year in the third quarter of 2025, surpassing economists' forecasts of 1.9% but slowing from a revised 4.5% in the second quarter. On a seasonally adjusted, quarter-on-quarter basis, the economy grew 1.3%, slightly easing from 1.5% in the prior quarter. Manufacturing and construction sectors were key drags on growth, while the services sector also decelerated due to contractions in wholesale and retail trade, and transportation and storage. The Monetary Authority of Singapore (MAS) maintained its policy settings, projecting GDP growth to moderate in 2026 to a near-trend pace with the output gap narrowing to around 0%. MAS expects core inflation to average around 0.5% for 2025 and range between 0.5% and 1.5% in 2026. Analysts characterized the MAS decision as a “comfortable hold” rather than a dovish pause, indicating a high bar for further easing. Singapore's non-oil domestic exports saw an 11.3% decline in August, the sharpest drop since March 2024, with significant declines in exports to the U.S.
Background
Singapore's economy is highly dependent on international trade and the global economic environment. As a major global trade hub and financial center, its economic performance is often seen as a barometer for the health of global trade. Currently, the global economy faces multiple challenges, including geopolitical tensions, rising trade protectionism, and divergent monetary policies among major economies. In 2025, the global economic backdrop is complex. Under President Trump, the U.S. is likely to continue its 'America First' trade policies, which could exert ongoing pressure on export-dependent nations like Singapore. Concurrently, the global investment boom in artificial intelligence is reshaping manufacturing and services sectors, and Singapore is actively seeking to capitalize on this opportunity to offset traditional trade headwinds.
In-Depth AI Insights
What are the deeper implications of Singapore's economic slowdown for regional Asian trade and supply chains? - Singapore's significant export decline, particularly to the U.S., as a key Southeast Asian transshipment hub, suggests regional supply chains might be undergoing structural realignment rather than just cyclical fluctuations. This could reflect a deepening of U.S. supply chain de-risking or 'friend-shoring' strategies, leading to long-term shifts in trade flows. - The deceleration in manufacturing and transportation/storage indicates a persistent structural weakness in global goods trade, beyond just a short-term demand shock. This might prompt other regional economies to reassess their reliance on traditional trade partners and accelerate diversification strategies. What message does Singapore's continued 'comfortable hold' monetary policy stance convey amidst global trade headwinds and declining exports? - MAS's projection of slower growth to a 'near-trend pace' in 2026, coupled with an unchanged policy, signals confidence in the economy's long-term resilience, viewing the current slowdown as primarily driven by external factors and base effects, rather than deep-seated structural issues. - This 'comfortable hold' stance may also reflect MAS's attempt to balance growth with inflation expectations, avoiding premature easing that could lead to an inflation resurgence, especially with core inflation expected to ease near-term before gradually picking up. This implies a higher tolerance for external demand shocks, unless an 'adverse demand shock' causes a significant flattening of the Singapore dollar nominal effective exchange rate slope. Can Singapore's strategy of banking on AI investment to support manufacturing effectively offset the long-term headwinds in traditional trade? - MAS explicitly stating that global AI investment will support manufacturing indicates Singapore's proactive push for economic transformation, shifting from traditional goods trade and re-export activities towards higher-value, technology-driven industries. - However, the benefits of AI investment take time to materialize, and its overall economic impact may not immediately offset the structural contraction in traditional trade sectors. Furthermore, competition in the AI industry is intensifying, and Singapore's ability to secure a firm position in the global AI value chain remains a challenge. Investors should monitor Singapore's concrete progress in attracting and fostering AI-related industries and their actual contribution to economic data.