SINGAPORE – Thanks to the AI boom, Singapore’s economy wrapped up the first half of 2026 on a high note – overcoming challenges posed by the global trade disruption and spike in energy prices caused by the Iran war.
The strong performance in the January to June period has tilted analyst consensus towards a higher-than-expected full-year growth rate, with a likely upgrade to the Ministry of Trade and Industry’s (MTI’s) forecast of 2 per cent to 4 per cent expansion.
However, the recent flare-up of hostilities in the Middle East signals that risks to that outlook remain.
Beyond elevated energy prices, other risks to economic growth include US tariffs – reintroduced under new pretexts after the original levies were ruled illegal by the country’s Supreme Court – and the El Nino weather pattern, which may push up food prices.
The Singapore economy grew 5.7 per cent year on year in the April to June quarter, a decent pace but slower than the previous quarter’s 6.3 per cent – which was upgraded by 0.3 percentage point.
This took first-half gross domestic product (GDP) growth to 6 per cent, a full 2 percentage points above MTI’s forecast range.
Bank of America’s ASEAN economist Kai Wei Ang was among analysts who were encouraged enough by the growth momentum to raise their full-year forecast.
He now expects 2026 GDP growth to come in at 4.5 per cent, up from his earlier estimate of 3.4 per cent, and believes MTI will lift its forecast to a range of 3.5 per cent to 4.5 per cent.
Japanese investment bank Nomura’s economist Euben Paracuelles also saw upside risk to his already above-consensus forecast of 4.6 per cent for full-year growth.
The crux of the analysts’ confidence lies in the AI-powered semiconductor super-cycle, which will boost exports and manufacturing output, and generate spillovers into other trade-related segments.
Edward Lee, chief economist and head of FX for ASEAN and South Asia at Standard Chartered Bank, said the strong AI-related export performance has reduced downside risks to Singapore’s growth.
But he is concerned that the non-electronics complex is not expanding as fast, signalling that the Republic’s expansion remains uneven despite robust GDP growth.
“We remain cautious on lingering risks. The US-Iran situation remains volatile and the recovery in energy supply is subject to uncertainty. Meanwhile, US tariffs remain an overhang,” Lee said.
Singapore’s increased exposure to the semiconductor industry is well flagged.
An MTI report earlier in 2026 showed electronics as the largest cluster within manufacturing, accounting for 43.2 per cent of the sector’s nominal value-added (VA) and 8 per cent of the country’s overall nominal VA in 2025.
Value-added is the wealth created by a business or an industry, calculated by taking the total revenue from selling a product and subtracting the costs of intermediate goods and raw materials.
The growth of Singapore’s semiconductor segment has outstripped that of the entire electronics cluster, with the segment accounting for 80.2 per cent of the electronics cluster’s nominal VA in 2025, up from 45.6 per cent in 2000.
That means Singapore is now among economies that are highly exposed to a slowdown in the global tech cycle.
But for now, most analysts believe, visibility on AI-related demand remains strong enough to support growth at least through 2026.
Surging profits among semiconductor firms have also made them resilient to elevated energy prices and trade disruptions.
But that resilience is likely to be tested as renewed deterioration in security conditions around the Strait of Hormuz has sent crude oil prices to around US$85 per barrel, up from US$72 at the start of July.
The recent resurgence of conflict between the US and Iran has shattered the 60-day ceasefire they agreed upon in mid-June.
US President Donald Trump has warned that he would escalate military strikes, citing Iranian power plants and bridges as potential targets, unless Iran stopped attacking commercial shipping in the Strait of Hormuz and returned to peace talks.
To be sure, broader economic damage from the conflict has been smaller than feared, as Middle East oil producers reroute some exports via pipelines bypassing the Strait of Hormuz, while Asian importers tap alternative supplies.
Still, oil prices started 2026 at around US$60 per barrel.
Also, the supply of crude oil has not been matched by output of refined products such as petrol, diesel and jet fuel, as refiners have been cautious about boosting capacity amid a lack of visibility on oil prices.
Refiners secure crude and set operating plans several weeks in advance, so when crude supply rebounded, they could not raise purchases and run rates fast enough to keep pace. This lag temporarily weighed on Brent prices, even as the additional crude could not be immediately converted into refined products.
Jorge Leon, research firm Rystad Energy’s head of geopolitical analysis, said: “Tanker traffic through the Strait of Hormuz has essentially stopped, which tells you more about risk perception right now than any statement from Washington or Tehran.”
While energy prices have been in the headlines, US efforts to rebuild its tariff structure using more legally durable measures continue to be a looming threat to global trade.
New tariffs under Section 301 may not come as a shock, but could still disrupt trade flows.
The Trump administration is likely to implement tariffs of 10 per cent to 12.5 per cent on 60 trading partners, including Singapore, within weeks, citing forced labour concerns.
A separate Section 301 investigation on industrial excess capacity may lead to further tariffs on 16 economies.
According to UK-based research firm Oxford Economics, a host of sectoral levies are also being fine-tuned and might come into force in the coming weeks – most notably the 100 per cent Section 232 duty on specific patented pharmaceuticals and their ingredients from July 31, alongside a standing 25 per cent semiconductor tariff now up for review.
StanChart’s Lee said: “Tariffs may no longer come as a shock, but they still pose a risk to growth.”
Adding to the inflationary impact of higher-for-longer energy prices and new tariffs costs is the El Nino weather event, likely to hit agriculture output worldwide.
The United Nation’s World Meteorological Organisation confirmed the onset and development of a likely forceful El Nino event over the next nine to 12 months.
While the event typically brings drier conditions to South-east Asia and parts of South Asia, and increases rainfall in parts of East Asia, no two El Ninos are the same.
DBS senior economist Radhika Rao said the last strong El Nino in 2023 to 2024 was associated with an extended period of extreme temperatures, heatwaves and dry conditions in some parts of the world, while other regions saw heavy rainfall. The year 2024 also earned the distinction of being the hottest on record.
She noted: “Unseasonal conditions and heatwaves have already pushed selected food commodities higher, including cocoa, crude palm oil, coffee and sugar.”
Selena Ling, chief economist and head of OCBC group research, said Singapore’s first-half growth is a strong testament to the economic resilience and agility of the economy.
“However, this does not imply there will not be further geopolitical, tariff or economic surprises in the second half,” she said.
