Singapore economy to stay firm for rest of 2026 as AI boom cushions oil shocks, new US tariff: MAS

SINGAPORE: The Singapore economy is expected to remain on a firm growth trajectory for the rest of 2026, with the global artificial intelligence boom helping to cushion the impact of higher energy costs arising from the Middle East conflict and a new wave of US import tariffs effective from Jul 24.The Monetary Authority of Singapore (MAS) said in its latest quarterly macroeconomic review on Monday (Jul 27) that Singapore's technology-related sectors continued to expand faster than expected as a result of resilient global AI demand.The electronics segment grew on the back of strong AI-driven demand for memory chips and server infrastructure, while growth was also observed in the infocomm and consumer electronics sectors as firms ramped up production to meet increased demand for AI servers and related products. The technology-related segments are projected to account for the bulk of the economy’s expansion for the full year, up from around 50 per cent in 2025, with momentum from the AI-driven tech cycle more than offsetting headwinds from the Middle East crisis, said the central bank. However, it also cautioned that the current valuations of AI could be overly optimistic if earnings fail to meet investors' expectations. That said, given the continued strength of AI-related earnings and long-term investments of major large cloud service providers, or hyperscalers, the strong growth in the AI sector could persist for some time before fundamentals are tested, MAS said in the report.Singapore's economy grew 5.7 per cent year-on-year from the April to June period, which was slightly slower than the 6.3 per cent growth in the preceding quarter, according to advance estimates the central bank released on Jul 14.Overall, MAS said on Monday that the positive output gap is now forecast to widen to 0.7 per cent of potential gross domestic product (GDP) in 2026. This indicates that economic activity is expected to rise above the economy's potential.Nevertheless, renewed fighting in the Middle East has increased concerns over energy supplies. MAS noted in its report that energy prices are expected to remain higher than pre-conflict levels. "While the risk of a severe supply disruption has receded, lingering concerns over the durability of the ceasefire is likely to sustain a geopolitical premium in the pricing of energy products," said MAS, adding that damaged energy infrastructure in the Middle East could take time to be restored, slowing the recovery in production capacity. The Trump administration unveiled new tariffs targeting 60 trading partners that took effect last Friday, including a new 12.5 per cent levy on Singapore's exports to the US. About one-third of the country’s domestic shipments to the US are set to be affected. On this, MAS said the adverse impact of the raised tariff on Singapore would be cushioned by export diversification and the boom in tariff-exempt electronics exports. However, the US' trade policy remains a "source of uncertainty" for the global outlook, said MAS. While the immediate impact of the tariffs is likely to be limited, the possibility of further measures could weigh at the margins on trade, investment and business confidence in the coming quarters.The macroeconomic review comes after MAS tightened monetary policy for the second time in a row on Monday morning. A tighter policy stance strengthens the Singapore dollar, and can help to reduce imported inflation.In April, the central bank had tightened the policy and increased its inflation forecast for 2026 to 1.5 to 2.5 per cent. MAS core inflation, which excludes accommodation and private transport, is projected to pick up from July and remain elevated into early next year, it said in its monetary policy statement.