Singapore’s Economic Balancing Act in 2026
Singapore faces a pivotal year in 2026 as shifting geopolitics, trade fragmentation, and a moderating technology cycle test its economic resilience, according to a new report by DBS, the country’s largest bank.
DBS Group Research forecasts GDP growth of 1.8 percent, close to potential but down from an estimated 4.0 percent in 2025, as the city-state navigates what analysts call the «two Ts» – tariffs and tech.
Export-driven sectors are expected to soften due to the lingering drag from higher global tariffs and potential new semiconductor levies originating from the US. The World Trade Organization (WTO) projects a 0.5 percent growth in world merchandise trade volume for 2026, compared with above 2 percent in 2024 and 2025, underscoring weakening external demand.
Tech Upcycle Loses Steam
Singapore’s electronics strength – powered by AI-related components – has reached a mature phase after an eighteen-month upswing. Global semiconductor sales growth is projected to cool to 9.9 percent in 2026 from 15.4 percent this year, potentially trimming manufacturing momentum if the AI boom eases or if threatened US chip tariffs are enacted.
The services economy – especially finance and insurance, information and communications, and professional services – is expected to cushion overall performance. These modern services have delivered stronger and more stable growth than manufacturing over the past decade, supported by digitalisation, accommodative financial conditions, and robust regional investment flows.
Construction Boom Becomes Growth Pillar
Large-scale infrastructure projects, including Changi Airport Terminal 5, Tuas Port, and the North-South Corridor, will fuel the domestic construction sector, which is set to generate annual demand of S$39-46 billion from 2026 to 2029. This represents a structurally stronger outlook than both the post-pandemic recovery and the pre-COVID era.
Headline and core inflation are forecast to average 1.2 percent and 1.0 percent, respectively in 2026, up from a post-pandemic trough in 2025 but still within the Monetary Authority of Singapore’s (MAS) target range. Imported disinflation is fading, while domestic costs will rise modestly as productivity lags wage increases.
Climate Transition Costs Add Price Pressures
Green policy shifts – including a planned one-point-eight-fold carbon tax increase and a sustainable fuel levy for aviation – are likely to push utility and travel prices higher. Analysts estimate the carbon tax adjustment could raise electricity tariffs by roughly four percent in 2026. Still, healthcare subsidies and reduced education fees will help limit inflation of essential services.
After two rounds of easing in early 2025, MAS is expected to leave the SGD NEER policy unchanged in 2026 as growth moderates and inflation stabilises. USD/SGD is seen trading between 1.25 and 1.30, in line with a softer dollar outlook.
Policy Focus: Refreshed Economic Blueprint
Under refreshed political leadership, Singapore will launch an updated strategy to enhance competitiveness and secure long-term vibrancy. Priorities include technology adoption, global investment attraction, and strengthening roles in emerging areas such as low-carbon energy and data flows. A mid-term review is expected during Budget 2026, followed by a final report by mid-year.
After outperforming in early 2025, SGD interest rates have declined sharply and still trade at a wide discount to US rates. With inflows expected to slow and MAS adopting a milder currency appreciation stance, analysts caution that «outperformance will be difficult to replicate» in 2026.
Year of Cautious Confidence
Singapore’s strengths as a trusted hub, combined with government buffers and policy continuity, underpin what DBS describes as «measured resilience» – growth that endures the headwinds while preparing for the next phase of economic transformation.
