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SINGAPORE: Singapore on Friday (Nov 21) upgraded its economic growth forecast for 2025 to around 4 per cent after a better-than-expected performance in the third quarter of the year.

This is higher than the previous growth projection of 1.5 per cent to 2.5 per cent that was made in August.

The Ministry of Trade and Industry (MTI) expects Singapore's gross domestic product (GDP) to grow at 1 per cent to 3 per cent in 2026.

MTI had upgraded the 2025 GDP growth forecast in August on account of strong front-loading activities in the second quarter.

This was due to the pause in the US’ reciprocal tariffs, as well as an improvement in the outlook for Singapore’s external demand due to the de-escalation in trade tensions between the US and several of its trading partners.

At that time, MTI had expected global growth to slow down in the second half of the year, with the dissipation of the boost from front-loading activities and the reinstatement of the US’ reciprocal tariffs after the temporary pause.

"Global economic conditions have turned out to be more resilient than expected," said MTI in a press release.

THIRD QUARTER

Singapore's economy grew 4.2 per cent year-on-year in the third quarter, beating the advance estimate of 2.9 per cent as well as the median forecast of 4 per cent in a Reuters poll of economists.

It also extended the 4.7 per cent growth in the second quarter.

MTI said the expansion in the third quarter was mainly driven by manufacturing, wholesale trade and finance and insurance sectors.

On a quarter-on-quarter, seasonally adjusted basis, the economy grew by 2.4 per cent in the July to September period, compared with 1.7 per cent in the April to June period.

For the first three quarters of 2025, Singapore’s GDP growth averaged 4.3 per cent year-on-year.

Singapore's key trading partners performed better than expected in the third quarter, said MTI, noting that export growth for China and Vietnam remained robust amid ongoing trade diversion and supply chain adjustments.

The stronger-than-anticipated artificial intelligence (AI) boom supported US economic growth, which in turn supported exports of AI-related semiconductors from the region.

The ministry also pointed to a further de-escalation in trade tensions, with the US-China trade truce extended to November 2026, with a reduced US tariff rate on China.

"Meanwhile, the rollout of the sectoral tariffs on semiconductors and pharmaceuticals has been slower than earlier anticipated," said MTI.

Trade-related sectors outperformed expectations, supported by the resilience of global trade and Singapore's trading partners, and strong global demand for AI-related semiconductors, servers and server-related products. 

"This generated positive spillovers to other sectors of the economy, including outward-oriented services sectors such as information and communications, and professional services," the ministry said.

For the rest of 2025, demand for AI-related electronics should continue to support manufacturing and wholesale trade sectors, while growth for outward-oriented services sectors is expected to remain resilient. 

OCBC chief economist Selena Ling said the third-quarter performance exceeded the bank's forecast of 4 per cent.

The upgraded 2025 forecast marks a "significant improvement" from the initial 0 to 2 per cent prediction following US President Donald Trump's so-called Liberation Day in April and the August forecast upgrade, she said.

OCBC has upgraded its forecast for the full year to 4 per cent. 

She added: "We expect MAS to stay in pause mode at the January monetary policy review amid resilient growth and stable core inflation."

2026 OUTLOOK

GDP growth for most of Singapore's key trading partners is likely to be lower than that in 2025, as the impact of the US tariffs is expected to be more pronounced, said MTI.

"As tariffs hit, it takes time for the effects to feed into the rest of the (US) economy ... as well as the exporting countries," said Dr Beh Swan Gin, MTI's permanent secretary.

Despite agreements between the US and some of its trading partners to lower tariffs, they will still be in place and that will have an effect, he said. 

The forecast for growth to be between 1 per cent and 3 per cent next year is not being "unduly pessimistic", he added.

Chief economist Yong Yik Wei said that tariffs were "a bit on and off" this year, with a temporary pause.

"Next year, because it's a full year worth of impact of the tariffs, and we do expect the front loading that took place this year to actually dissipate next year ... we do expect the impact of the US tariffs to be more pronounced," she said.

MTI said China's GDP growth is forecast to moderate on the back of slower export growth and the boost provided by the consumer goods trade-in scheme fades.

"GDP growth in the Eurozone is also projected to slow as industrial activity weakens due to the US’ tariffs," it added.

This slowdown in growth in major economies would moderate the demand for exports from Southeast Asia.

GDP growth among key Southeast Asian economies is expected to ease, although stable domestic demand "should provide some support".

MTI expects the US economy to remain "relatively resilient", supported by sustained AI-related investment even as domestic consumption growth moderates amid cooling labour market conditions.

On the downside, global economic uncertainty remains elevated and could increase further if tariff actions or geopolitical tensions escalate. 

That would weigh on sentiment and cause businesses and households to pull back on hiring, investment and spending.

An escalation in risk-off sentiments could trigger sharp corrections in global financial markets, with potential spillovers to broader economic growth.

Manufacturing and trade-related services sectors in Singapore are projected to expand at a slower pace next year.

Semiconductor equipment makers may face headwinds in the near term if firms take longer to commit to new capacity investments while waiting for greater certainty on US tariffs on the sector.

Mr Zavier Wong, market analyst at trading platform eToro, said Singapore is riding the upswing well, but policymakers seem wary of next year's outlook.

"Businesses are still making decisions with one eye on what happens when the truce eventually expires, and that uncertainty naturally caps how confident policymakers can be about the year ahead," he said.

SECTOR PERFORMANCE

The manufacturing sector expanded 5 per cent year-on-year in the third quarter, extending the 5.1 per cent growth reported in the previous quarter.

The electronics cluster grew due to a significant increase in demand for AI-related semiconductors, servers and server-related products, while the biomedical manufacturing cluster was boosted by a higher-than-expected level of production of a "key high-value active pharmaceutical ingredient". MTI declined to reveal what the ingredient was.

On a quarter-on-quarter, seasonally adjusted basis, the sector grew 11.3 per cent, reversing the 0.6 per cent contraction reported in the previous quarter.

The wholesale trade sector grew 3.9 per cent in the third quarter, slower than the 6.9 per cent in the second quarter.

The machinery, equipment and supplies segment saw robust growth in the wholesale volumes of electronic components and telecommunications and computers, bolstered in part by strong demand for AI-related electronics. 

Wholesale volumes of fuels and chemicals, and "others" segments declined during the third quarter. On a quarter-on-quarter seasonally adjusted basis, the sector contracted 1.4 per cent, a reversal from the 4.8 per cent expansion in the second quarter.

Growth in the finance and insurance sector stood at 4.6 per cent in the third quarter, driven mainly by the banking and other auxiliary activities segments. 

The banking segment was supported by growth in banks' net fees and commissions, and an increase in credit intermediation activity. The other auxiliary activities segment, comprising mostly payments players, likely benefited from a boost in payment transaction volumes domestically and in the region.

On a quarter-on-quarter seasonally adjusted basis, the sector expanded 0.8 per cent, up from a 0.1 per cent contraction in the previous quarter.