^{Photo: Bloomberg}

Singapore Avoids Technical Recession With Strong Q2 Rebound

Singapore’s economy expanded by 1.4% quarter-over-quarter in Q2 2025, reversing the 0.5% contraction it suffered in the first quarter and narrowly dodging a technical recession. On an annual basis, GDP rose by 4.3% — outperforming expectations of 3.5% and showing a slight acceleration from the 4.1% growth recorded in Q1.

A technical recession is typically defined as two consecutive quarters of negative GDP growth. Economists polled by Reuters had forecast a milder 0.6% rebound, making this a significant upside surprise.

The better-than-expected performance was primarily driven by robust growth in the manufacturing sector and a strong recovery in construction activity.

Manufacturing and Construction Sectors Lead the Charge

Manufacturing, which comprises around 17% of Singapore’s total economy, surged 5.5% year-over-year in Q2 — up from 4.4% in Q1. This sector benefited from stable global demand for semiconductors and electronics, as well as a temporary pause in tariff escalations between the U.S. and China.

Chua Hak Bin, Senior Economist at Maybank Investment Banking Group, noted that falling global interest rates, a de-escalation in the U.S.-China tariff war, and companies accelerating export orders ahead of potential tariff hikes all contributed to the strong manufacturing numbers.

Construction also saw a healthy turnaround, growing 4.4% in the second quarter after a 1.8% contraction in Q1. This rebound was driven by a surge in private sector residential developments and government infrastructure projects. The sector’s momentum reflects both public investment confidence and revived demand in real estate and commercial construction.

Tariff Truce Spurs Export Front-Loading

Analysts say a key contributor to the Q2 growth was the export front-loading by firms aiming to get ahead of the August 1 deadline — when the current pause on reciprocal tariffs may end.

Song Seng Wun, Economic Advisor at CGS International, explained that companies rushed orders in Q1 fearing the "Liberation Day" tariffs, and doubled down in Q2 due to uncertainty over whether the tariff pause would be extended.

Although Singapore has not received a formal “tariff letter” from President Donald Trump — unlike several neighboring Southeast Asian countries — the city-state is still subject to a 10% baseline U.S. tariff on exports, despite a longstanding free trade agreement signed in 2004.

Government and Analysts Warn of Lingering Uncertainty

Despite the strong Q2 numbers, Singapore’s Ministry of Trade and Industry (MTI) remained cautious. In its statement, MTI warned of “significant uncertainty and downside risks” for the remainder of 2025, particularly surrounding U.S. tariff policies and their impact on global trade flows.

In April, MTI downgraded Singapore’s full-year GDP forecast to a range of 0% to 2%, from its earlier projection of 1% to 3%. The country had posted 4.4% growth in 2024.

Song said the Q2 surprise, coupled with a recovering trade environment, points to possible upside revisions to the government’s growth forecast. However, he also noted that Singapore remains vulnerable to shifts in global demand and protectionist trade measures.

“Any drag on global trade will impact Singapore — the question is how much,” Song stated. “It could vary widely by sector and trading partner.”

Chua of Maybank offered a more optimistic take, projecting full-year GDP growth at 2.4%, above MTI’s upper-end estimate. He acknowledged the potential for trade disruptions but said the region is more likely to experience a “modest slowdown” rather than a full contraction in the second half.

Monetary Policy Decision Ahead Amid Low Inflation

All eyes are now on the Monetary Authority of Singapore (MAS), which is set to announce its policy decision later this month.

In its May meeting, MAS loosened monetary policy for the second time this year, citing downside risks from volatile financial markets and weak external demand. The central bank emphasized that any sharper-than-expected slowdown in trade could spill over into Singapore’s trade-linked sectors and threaten broader economic stability.

Fortunately, low inflation has given policymakers room to maneuver. In May, Singapore’s headline inflation dropped to 0.8% — its lowest since February 2021 — while core inflation, which excludes housing and private transport, eased to 0.6%, down from 0.7% the month before.

Given these figures, another policy easing or rate cut remains a possibility if economic uncertainty deepens.

Government Support Measures and Outlook

To mitigate the impact of global trade tensions, the Singaporean government recently introduced a suite of grants aimed at helping businesses adapt to shifting trade conditions. These measures include funding for supply chain restructuring, digitization efforts, and workforce upskilling.

With the global economic landscape still clouded by geopolitical risks, Singapore’s resilience will depend heavily on its ability to adapt quickly, remain competitive, and maintain its critical trade relationships — especially with the U.S., China, and the broader ASEAN region.

While the Q2 GDP rebound offers hope, policymakers and analysts agree: Singapore’s growth path in 2025 is far from certain, and will hinge on how the global trade picture unfolds in the months ahead.