MTI 1Q2026 Economic Survey - Details

Executive Summary

In the first quarter of 2026, the Singapore economy demonstrated robust growth, with Real GDP expanding by 6.0% year-on-year, an acceleration from the 5.7% growth seen in the previous quarter. This performance was primarily underpinned by strong output in the wholesale trade, manufacturing, and finance & insurance sectors. A central theme of this quarter was the Artificial Intelligence (AI) boom, which propelled the electronics cluster—specifically semiconductors and infocomms—to significant growth despite broader global uncertainties. However, the outlook is tempered by a deteriorating global environment.

The onset of the US-Israel-Iran conflict and the blockade of the Strait of Hormuz have introduced substantial downside risks, including spiked energy costs and supply chain disruptions for critical semiconductor inputs. While the labor market remains resilient with a resident unemployment rate of 2.9%, inflationary pressures have edged upward, with the Consumer Price Index (CPI) rising to 1.5%. External demand is expected to weaken for the remainder of the year as global financial conditions tighten and real incomes are eroded by inflation.

Overall Economic Performance

The economy grew by 1.0% on a seasonally-adjusted quarter-on-quarter basis. Growth was supported by an 11.9% increase in total demand, driven primarily by external demand (up 14.5%) and gross fixed capital formation (up 9.5%).

Key GDP Contributors

Sector YoY Growth Rate Contribution to GDP Growth Wholesale Trade 11.7% 2.1%-points Manufacturing 7.9% 1.3%-points Finance & Insurance 5.7% 0.8%-points Construction 11.8% 0.4%-points

Sectoral Deep Dive

1. Manufacturing and the AI Impact

The manufacturing sector’s 7.9% growth was dominated by the electronics cluster, which surged by 26.1%. AI Demand: Strong global demand for AI infrastructure benefitted the semiconductors (+28.4%) and infocomms & consumer electronics (+35.3%) segments. Global Context: Hyperscaler capital expenditure is forecasted to exceed USD 800 billion in 2026, driving demand for memory chips produced in Singapore. Contractions: The biomedical manufacturing cluster (-24.1%) and chemicals cluster (-6.1%) faced significant declines due to a different pharmaceutical product mix and feedstock supply disruptions, respectively.

2. Construction Growth accelerated to 11.8% from 4.6% in the previous quarter. Certified Payments: Rose by 19.2%, supported by both public (21.8%) and private (16.1%) sector works. Contracts Awarded: Declined by 24.9% YoY, indicating a potential future cooling in demand as public residential and private industrial contracts fell sharply.

3. Services Producing Industries The services sector grew by 5.7% YoY. Wholesale Trade: Benefited from a 50.4% surge in sales volume for electronic components. Accommodation: Maintained 6.6% growth; visitor arrivals reached 4.4 million, approximately 94.5% of pre-pandemic (2019) levels. Finance & Insurance: Growth was supported by net fees and commissions as investors reallocated portfolios in response to the Middle East conflict.

4. Labor Market and Productivity

The labor market remains stable, though employment growth has moderated.

Employment: Total employment rose by 8,600 (compared to +20,800 in 4Q25). Growth was led by Transportation & Storage (+4,700) and Administrative & Support Services (+4,100). Unemployment: The resident unemployment rate remained unchanged at 2.9% as of March 2026. However, the citizen unemployment rate edged up to 3.1% (from 3.0%). Retrenchments: Held steady at 3,700 for the quarter.

Productivity: Overall labor productivity (Value-Added per Actual Hour Worked) rose by 3.2%. The Wholesale Trade sector recorded the highest gain at 12.3%.

5. Costs and Prices

Inflation Trends The Consumer Price Index-All Items (CPI) rose by 1.5% YoY, driven by: Health: +4.2% (health insurance and inpatient care). Transport: +3.7% (car prices, petrol, and public fares). Food: +1.4% (hawker food and seafood).

6. Business Costs

Unit Labour Cost (ULC): The overall ULC fell by 1.0%, as productivity growth outpaced total labor cost increases. Manufacturing Unit Business Cost (UBC): Rose by 0.5%, reversing a previous decline. This was driven by unit services costs and non-labour production taxes, despite the 4.4% drop in manufacturing ULC.

7. International Trade and Balance of Payments

Singapore’s trade performance was exceptionally strong in 1Q26, largely due to the electronics cycle. Merchandise Trade: Increased by 25.6% YoY. Merchandise exports surged 27.9%, led by a 45.6% jump in re-exports and a 9.6% increase in Non-Oil Domestic Exports (NODX). Services Trade: Expanded by 4.4%, with exports led by business, financial, and travel services. Overall Balance of Payments: Recorded a surplus of $16.9 billion, though this narrowed from the $21.4 billion surplus in the previous quarter. The current account surplus remained high at $41.1 billion.

8. Economic Outlook and Risks

The Ministry of Trade and Industry notes that the external demand outlook has weakened since February 2026.

Primary Downside Risks

Geopolitical Conflict: The US-Israel-Iran conflict and the blockade of the Strait of Hormuz have spiked energy and input costs (fertilizer, aluminum). Energy Intensity: Higher electricity prices may weigh on the margins of energy-intensive electronics producers and data centers in Singapore. Supply Chain Vulnerability: The Middle East is a critical supplier of semiconductor inputs like helium, bromine, and sulphur; a protracted conflict could constrain production. AI Capex Pullback: Uncertainty exists regarding whether higher energy costs or financial market concerns over returns will cause hyperscalers to reduce AI-related investments.

Summary of Regional Outlook

US and Eurozone: Growth forecasts have been downgraded due to inflation and cost pressures. China: Growth is expected to moderate due to softer export demand. Southeast Asia: Projected to be supported by resilient AI-related exports, offsetting weakness in non-AI sectors.

Source: https://isomer-user-content.by.gov.sg/166/cbda13af-78fe-408d-91fa-21f50825cdb5/FullReport_1Q26.pdf