Singapore’s economy, which expanded by 4.8% in 2025, is expected to see a moderation in growth to 2.6% in 2026, according to UOB Global Economics and Markets Research. The growth in 2025 was largely fuelled by AI-driven demand for semiconductors and export front-loading due to tariff concerns. However, the outlook for 2026 suggests a more tempered pace as the effects of these factors begin to stabilise.
The labour market is projected to remain stable, with a slowdown in hiring and smaller wage increments anticipated. Core inflation is expected to rise to 1.5% in 2026, up from 0.7% in 2025, primarily due to low base effects. UOB suggests that the Monetary Authority of Singapore (MAS) may consider adjusting its policy in April or July 2026 to align the Singapore dollar’s real effective exchange rate closer to equilibrium levels.
AI-related demand continues to bolster the electronics sector, with Singapore’s electronics Purchasing Managers’ Index (PMI) showing improvement in December 2025. This trend is expected to persist into the first half of 2026, supported by increased orders and employment in the sector.
Despite the positive outlook, UOB highlights potential risks, including geopolitical events or macroeconomic shocks that could impact AI-related capital expenditure plans. Such disruptions could lead to a tightening of financial conditions and potentially trigger a recession led by the US.
In conclusion, whilst Singapore’s economy is poised for continued growth, albeit at a slower rate, the focus remains on leveraging AI and digitalisation to sustain productivity gains and economic resilience amidst global uncertainties.
