^{Photo: The Straits Times}

Singapore reported a surprisingly strong 2.9% year-on-year expansion in the third quarter of 2025, easily outpacing the consensus forecast of around 1.9%. Yet amid that upside surprise, analysts and policymakers are already sounding the alarm: growth in 2026 is likely to decelerate as external headwinds mount and domestic momentum normalizes.

Q3 Performance: Better Than Feared, But Cooling

Broad Gains, Narrow Weakness

On a seasonally adjusted, quarter-on-quarter basis, GDP grew 1.3%, slightly down from 1.5% in Q2. The Ministry of Trade & Industry (MTI) noted that while the headline numbers show resilience, beneath the surface several sectors are softening.

Manufacturing, the usual engine of growth, essentially stalled year-on-year after a 5% expansion in the prior quarter. The biomedical and general manufacturing clusters registered output declines, offsetting gains in other manufacturing sub-segments.

Construction also lost steam: it expanded 3.1% year-on-year, down from 6.2% in Q2. Meanwhile, services growth slowed dramatically to 0.2%, dragged down by contractions in wholesale & retail, transportation, and storage operations.

MTI explained that although some manufacturing clusters held up, the drag from weakening export demand and supply chain constraints weighed heavily overall.

External Stress: Export Drop, Trade Weakness

Singapore’s external sector showed signs of strain. In August, non-oil domestic exports plunged 11.3% year-on-year, marking the sharpest drop since March 2024. Key markets were hit hard: exports to the U.S. declined by nearly 28.8%, following a 42.8% drop in July. Shipments to China and Indonesia also contracted significantly.

These export data underline the vulnerability of Singapore’s trade-oriented economy to global demand swings and tariff pressures.

Monetary Policy: MAS Holds Steady, Warns of Moderation

The Monetary Authority of Singapore (MAS) opted to keep its policy settings unchanged in October, maintaining the existing slope, width, and mid-point of its exchange rate–based policy band. MAS explicitly cautioned that growth is likely to “normalise” in 2026, with the output gap expected to narrow toward zero.

MAS sees some tailwinds—ongoing investments in artificial intelligence, infrastructure spending, and steady credit conditions—but noted that overall momentum is likely to ease as trade pressures persist.

Looking at inflation, MAS projected core inflation (excluding private transport and accommodation) to average around 0.5% in 2025, and land between 0.5% and 1.5% in 2026. Given that inflation has already decelerated substantially, the central bank characterized its stance not as a “dovish pause” but a “comfortable hold”, warning that further easing would require downside surprises in growth.

Navigating the Road Ahead: Risks & Outlook

Slower Growth in 2026

While 2025 is still shaping up to be a decent year—boosted by front-loaded exports and resilient service sectors—2026 is likely to see growth retreat toward trend levels of 3% or lower. Econometric forecasts suggest that growth could stabilize around 3.3% in 2026, though that depends heavily on external demand and global conditions.

MAS has cautioned that the cooling in trade, coupled with normalizing capex and consumption, will increasingly weigh on momentum. The central bank’s warning suggests that policymakers expect some slowing, even as they remain cautious about prematurely easing.

Sectoral Divergence and Structural Shifts

The weakness in manufacturing and trade is structural in nature: as global supply chains fragment and tariff risks persist, Singapore’s export-led sectors will come under pressure. To offset some of these effects, the government and private sector are counting on technology, AI, and infrastructure projects to carry parts of the load—especially in finance, logistics, and high-end manufacturing.

Policy Flexibility and External Shocks

With inflation subdued, MAS retains some room to respond. But the bar for adjustment is high. The central bank and government will be closely monitoring geopolitical risk, trade policy changes (especially U.S. tariffs), and global demand trends as potential triggers for policy shifts.

Singapore’s unique monetary framework—using an exchange rate anchor rather than interest rates—also gives MAS more flexibility to respond in a nuanced way.

Singapore’s Q3 growth performance surprised on the upside, but the underlying metrics suggest that the economy is losing steam. With exports sinking, key sectors softening, and global headwinds mounting, the brighter days may lie behind. As 2026 approaches, the tone from policymakers leans cautious: strong expansion is unlikely, and maintaining stability will rely on a delicate balance of internal dynamism and external resilience.