SINGAPORE, July 15 (Xinhua) -- Singapore's economic outlook for 2026 has brightened after stronger-than-expected first-half growth prompted economists to upgrade their forecasts, with artificial intelligence (AI)-driven demand, a robust electronics cycle and resilient services activity expected to support expansion through the rest of the year.
UOB Global Economics and Markets Research has raised its 2026 Singapore gross domestic product (GDP) growth forecast to 4.8 percent from 4 percent, citing stronger-than-expected economic performance in the first half of the year and sustained momentum from AI-related demand.
The upward revision follows advance estimates from Singapore's Ministry of Trade and Industry (MTI), which showed the economy expanded 5.7 percent year-on-year in the second quarter, moderating slightly from the 6.3 percent growth recorded in the first quarter.
UOB said recent indicators suggest AI-driven tailwinds are likely to remain supportive into the third quarter. The electronics purchasing managers' index (PMI) rose 0.3 points to 52.2 in June, with broad-based improvements across key sub-indices, including new export orders, stocks of purchases, employment and order backlogs.
"This points to continued strength in AI-related demand," the research house said. It added that a rise in the electronics orders-to-inventories ratio indicates firms are drawing down inventories to meet robust demand, which should support growth in electronics industrial production in the coming months.
However, UOB warned of downside risks to its outlook. A renewed escalation of tensions in the Middle East could trigger a sharp rise in energy prices, potentially prompting central banks to tighten monetary policy further. Combined with a possible correction in AI-related equities amid elevated valuations, this could lead companies to delay capital expenditure plans and weaken the electronics cycle.
Separately, Nomura Global Markets Research said Singapore's stronger-than-expected first-half performance presents upside risks to its existing 2026 GDP growth forecast of 4.6 percent, which is already above MTI's official forecast range of 2 percent to 4 percent and the consensus forecast of 3.4 percent.
Nomura expects multiple growth drivers to support the economy, reflecting a broadening of AI-related demand. Its outlook is also underpinned by expectations of a global semiconductor "super cycle," which should boost electronics exports, manufacturing output and trade-related sectors.
Meanwhile, S&P Global Market Intelligence also raised its 2026 GDP growth forecast to 4.8 percent following the stronger-than-expected second-quarter advance estimates.
The research house said Singapore's near-term growth outlook remains supported by the electronics upcycle, particularly demand for semiconductors and semiconductor manufacturing equipment linked to AI.
"This should continue to benefit manufacturing, precision engineering, machinery-related wholesale trade and logistics activity, after these segments underpinned the second-quarter expansion," it noted.
Services sectors, including information technology, banking, insurance and professional services, are also expected to remain key contributors to growth, while construction activity should stay positive despite moderating momentum.
Despite the improved growth outlook, S&P warned that Singapore's economic momentum is unfolding against a more uncertain external environment. The research firm noted that the conflict in the Middle East intensified in July, with Iran declaring the Strait of Hormuz closed "until further notice" on Sunday and the United States carrying out additional strikes on Iranian military targets.
S&P expects intermittent armed exchanges to continue and said extreme shipping risks around the Strait of Hormuz remain elevated.
It noted that supply chain disruptions are already affecting parts of Singapore's economy, with the chemicals cluster contracting in the second quarter due to feedstock shortages linked to the conflict.
It opined that the renewed disruptions to Gulf shipping, coupled with the United States' July 7 revocation of Iranian oil sanctions waivers, are likely to keep pressure on hydrocarbon-linked feedstock supplies, freight rates, insurance costs and imported input prices.
"Singapore's role as a regional trading, logistics and re-exporting hub, together with its dependence on imported energy and intermediate goods, leaves it exposed to prolonged disruption in shipping and hydrocarbon-linked supply chains," it added. ■