SG’s 2026 growth forecast upgraded to 4.5–5.5%: AI upcycle lifts outlook, positive view maintained

Singapore’s economic momentum has proven more resilient than expected, prompting the Ministry of Trade and Industry (MTI) to significantly raise its 2026 growth outlook. Following stronger-than-expected performance in the first half of the year, MTI lifted its full-year GDP growth forecast to 4.5–5.5%, from 2.0–4.0% previously. This marks the second upward revision this year and represents a notable step-up from the 1.0–3.0% range set at the start of 2026.

The upgrade follows a robust first half, with GDP expanding 5.9% year-on-year in 2Q26, easing from 6.3% in the first quarter but ahead of the 5.7% advance estimate. On a seasonally adjusted quarter-on-quarter basis, the economy grew 1.4%, extending the 1.2% expansion in 1Q26, bringing first-half growth to 6.1%. Manufacturing remained the key growth engine, expanding 12.5% on strong electronics and precision engineering output, while wholesale trade and finance also contributed to the broad-based expansion.

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The upgrade rests on the AI driver we have tracked all year

The catalyst behind the upgrade is increasingly clear: the acceleration in global AI-related capital expenditure. MTI identified stronger AI-related demand as a key driver of the electronics cluster and expects the global AI investment cycle to remain a significant tailwind into the second half. This is consistent with the signals we have tracked across Singapore’s economy throughout the year — electronics exports surged 105.1% in June, the electronics PMI has remained in expansionary territory, and electronics and precision engineering output have continued to post strong growth. What the latest GDP data confirm is that this momentum has now moved beyond individual indicators and is contributing meaningfully to headline economic growth.

The strength of the cycle is underpinned by a supply-demand imbalance in memory and other semiconductor components. AI infrastructure is absorbing an increasing share of global memory capacity, with data centres projected to account for roughly 70% of worldwide memory output in 2026. At the same time, memory manufacturers are reallocating capacity towards high-bandwidth memory and server applications, tightening supplies of conventional DRAM and NAND.

Singapore is positioned to benefit not only from the growing demand for chips, but also from the investment needed to expand the wider semiconductor ecosystem. UMC’s new 22nm/28nm Singapore fab has entered volume production this year, while its Singapore facility has also begun mass production of silicon-photonics wafers for next-generation AI data-centre optical interconnects. Micron’s new HBM advanced packaging facility is scheduled to begin operations this year, with meaningful capacity expansion from 2027, while its new NAND fabrication facility is expected to begin wafer output in 2H28. VSMC’s 300mm wafer fab is targeting initial production in 2027.

The investment cycle also extends beyond wafer fabrication. King Yuan Electronics, a global semiconductor testing services provider, began operations at its new Singapore facility in May. At the same time, Applied Materials has expanded its local manufacturing and R&D footprint with a new USD 500 million facility to support AI-driven chip demand. Singapore already accounts for around one-fifth of global semiconductor equipment output, underscoring the breadth of its role across the supply chain. Taken together, these investments create a reinforcing cycle: stronger AI infrastructure spending drives semiconductor demand, which encourages capacity expansion, equipment investment and related manufacturing activity in Singapore.

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SG's June industrial production moderates, while AI-driven manufacturing momentum remains intact

Stronger momentum provides a buffer against lingering risks

The stronger growth backdrop gives policymakers greater room to respond pre-emptively to renewed inflation pressure. In July, MAS unexpectedly raised the rate of appreciation of the S$NEER policy band by a “very slight” amount, marking its second consecutive tightening this year. MAS expects inflation to pick up from July and remain elevated before easing around the middle of 2027, with economic momentum holding up well, the measured adjustment also leaves room for policymakers to remain data-dependent as the outlook evolves.

The main near-term risk remains the energy shock. Singapore remains highly dependent on imported energy, while ongoing disruptions to Middle Eastern energy and shipping routes are likely to keep fuel and electricity costs elevated. The Government has responded with substantial fiscal support, including an initial package of around SGD 1 billion in April and a further package of around SGD 900 million in July to cushion businesses and households from higher operating and living costs. These measures should help limit the second-round impact on domestic demand, although a prolonged energy shock could still feed into inflation and weigh on growth.

Beyond energy, Singapore’s increasing exposure to the global electronics and AI investment cycle remains another key risk to monitor. A sharp moderation in AI-related capital expenditure would weaken semiconductor demand and could have an outsized impact on manufacturing and trade activity, while the biomedical and chemicals clusters remain more volatile contributors to headline growth. Nevertheless, the exceptionally strong first-half performance provides a meaningful cushion. With GDP growth already at 6.1% in 1H26, Singapore enters the second half from a stronger base than previously expected, leaving the upgraded 4.5–5.5% full-year forecast within reach even if growth momentum moderates.

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Positive view on Singapore maintained

The stronger GDP outlook reinforces our constructive view on Singapore equities, with the investment case extending beyond the macro recovery. The banks remain an important anchor for the STI, offering resilient earnings and attractive dividend yields, supported by Singapore’s position as a regional wealth management hub, where sustained wealth inflows and rising assets under management continue to support fee income. At the same time, large-cap industrials such as ST Engineering and Yangzijiang Shipbuilding are emerging as increasingly important earnings contributors, underpinned by robust order books and improving earnings visibility. Beyond the STI’s blue-chip constituents, ongoing capital market reforms — including the expanded Equity Market Development Programme and measures to improve market liquidity — should encourage broader market participation and gradually strengthen the investment case for small- and mid-cap names.

We therefore maintain our positive view on Singapore. For investors seeking diversified exposure to Singapore equities, we continue to recommend the  Amova Singapore STI ETF (SGX: G3B) for broad market exposure, while the iFAST-Amova Singapore Equity A SGD offers greater exposure to small- and mid-cap opportunities beyond the STI’s 30 blue-chip constituents.

Declaration

For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) and the analyst who produced this report hold a NIL position in the abovementioned securities.

This research report was prepared with the assistance of artificial intelligence (AI) tools. iFAST Financial Pte Ltd does not rely exclusively on AI for content generation; the content of this report, including all investment theses, ratings, price targets and conclusions, has been independently reviewed and verified by the research analyst(s) to ensure accuracy and professional integrity.