Singapore’s Q3 GDP growth reflects global tailwinds, domestic resilience: OCBC chief economist

Key Concepts

• GDP Growth Forecast Upgrade: Singapore's Ministry of Trade and Industry (MTI) significantly raised its GDP growth forecast for the year.
• Q3 GDP Performance: The country experienced stronger-than-expected GDP growth in the third quarter.
• Drivers of Growth: Manufacturing, wholesale trade, and finance & insurance sectors were key contributors.
• External Resilience: Global economic conditions proved more robust than anticipated.
• Export Weakness: Non-electronics exports declined, impacting overall trade performance.
• AI-Related Demand: Expected to support future trade performance.
• NOx Growth Forecast: Narrowed for the current year.
• 2026 Export Projections: Anticipate moderation due to potential tariff risks.
• Monetary Policy Stance: The Monetary Authority of Singapore (MAS) is likely to maintain its current policy.
• Core Inflation: Showing a downward trend, within the MAS's comfort zone.
• Trade-Weighted Singapore Dollar (S$): Has pulled back from extreme strength, providing policy flexibility.

Singapore's Economic Performance and Forecasts

1. GDP Growth Forecast Upgrade and Q3 Performance

The Ministry of Trade and Industry (MTI) in Singapore has significantly upgraded its GDP growth forecast for the year to approximately 4%, a substantial increase from the previously projected range of 1.5% to 2.5%. This upward revision is primarily attributed to a better-than-expected performance in the third quarter (Q3).

• Q3 GDP Growth: Singapore's GDP grew by 4.2% year-on-year in the quarter ending September. This pace is considerably stronger than initial estimates of 2.9% and also surpassed economists' forecasts of 4% growth. However, it does represent a slowdown from the revised 4.7% expansion recorded in the second quarter.
• Quarter-on-Quarter Growth: Q3 GDP also saw a 2.4% growth quarter-on-quarter.

2. Key Sectors Driving Q3 Growth

Data from the MTI indicates that growth in Q3 was predominantly driven by the following sectors:

• Manufacturing: This segment saw growth led by the electronics, transport and engineering, and biomedical manufacturing clusters.
• Wholesale Trade: This sector also contributed significantly to the overall growth.
• Finance and Insurance: This sector's strong performance further bolstered the Q3 economic figures.

3. Factors Influencing the Upgrade and Future Outlook

Authorities attribute the upgrade to more resilient global economic conditions than initially anticipated.

• External Factors:

  • US Economy: The US economy has performed better than expected, contributing to Singapore's export performance.
  • Regional Supply Chains: China and ASEAN economies have also shown stronger-than-expected performance in Q3, benefiting regional supply chains.
  • Monetary Policy Easing: Easing monetary policies across the globe have also played a role in supporting economic resilience.
  • AI-Related Demand: Strong demand related to Artificial Intelligence (AI) is expected to support Singapore's trade performance in Q4.
  • High Gold Prices: These are also anticipated to bolster trade performance.

• Internal Factors:

  • Domestic Resilience: While external factors are significant, there is also a degree of domestic resilience.
  • Construction Momentum: Steady momentum in the construction sector, driven by civil engineering works for infrastructure projects, is a positive contributor.
  • Finance and Insurance: Ample liquidity and continued wealth flows into the region are supporting this sector.

4. Challenges and Risks

Despite the positive outlook, certain factors could hinder economic performance:

• Export Weakness: Singapore's key exports in Q3 were weighed down by a decline in non-electronics, particularly due to weak shipments of food preparations, petrochemicals, and pharmaceuticals.
• Potential Tariff Escalation: Authorities project export gains to moderate further in 2026, citing risks such as a potential renewed escalation of tariff actions that could dampen demand.
• AI Cycle Durability: While AI is a strong driver, market skeptics exist, and volatility in AI-related stocks suggests potential speed bumps. However, significant investments and capital expenditure in the AI industry suggest sustained growth for a while longer.

5. Sector-Specific Performance and Outlook

• Manufacturing: The upgrade in manufacturing was a significant upside surprise, particularly due to the September industrial production numbers.
• Construction and Services: These sectors also saw slight upward revisions.
• Wholesale Trade: This sector's outperformance is linked to AI and server-related demand for machinery and supplies.
• Services Sector: This sector presents a mixed picture. While some areas are performing well, others are not. The strong Singapore dollar facilitates outward leakage of domestic consumption (travel), but the influx of overseas business travelers, attracted by events like the fintech festival and F1, provides a counterbalancing effect. This uneven growth in services is expected to persist into 2026.

6. Forecasts for 2025 and 2026

• 2025 GDP Growth: MTI has upgraded its growth forecast for Singapore's economy in 2025 to around 4%.
• 2026 Export Projections: Export gains are expected to moderate further in 2026.
• 2026 GDP Growth Forecast: The official forecast for 2026 is between 1% and 3%, reflecting a prudent expectation of moderation after a high base in 2025.
• NOx Growth Forecast (Current Year): Authorities have narrowed their NOx (non-oil domestic exports) growth forecast to around 2.5%.

7. Monetary Policy and Inflation

• MAS Policy Stance: Given the current economic data, the Monetary Authority of Singapore (MAS) is expected to maintain its current policy stance at its next review.
• Core Inflation: Core inflation is declining nicely, projected to be around 0.5% for the current year. While it might bottom out and edge up slightly, the forecast of 0.5% to 1.5% for next year is within the MAS's comfort zone.
• Trade-Weighted Singapore Dollar (S$): The S$ has pulled back from its extreme strength, providing the MAS with some leeway to remain on hold for its monetary policy. This suggests no immediate urgency to adjust policy settings. The MAS has one more policy meeting in January, and given the growth outperformance and stabilizing trade/tariff situation, a hold is considered likely.

8. Key Arguments and Perspectives

• Selena Ling (Chief Economist, OCBC): Highlights that the Q3 GDP figures were a positive and broad-based surprise, exceeding expectations due to strong manufacturing performance. She emphasizes that while external factors have been crucial, domestic resilience also plays a role. Ling notes the potential for a slowdown in Q4 but still expects growth around the 3% year-on-year mark. She also points out the mixed performance of the services sector and the expected moderation in 2026. Regarding AI, she believes the underlying demand is strong despite market skepticism, supported by significant investments. On monetary policy, she sees no urgency for the MAS to change its stance due to moderating inflation and a less extreme S$.

9. Notable Quotes

• "The country's trade and industry ministry upgrading its GDP growth forecast for the year to around 4% from between 1.5 and 2.5% which was projected earlier."
• "GDP for the quarter ended September grew 4.2% on year. That is a much stronger pace than early estimates of 2.9% that also beats economist forecast for a 4% growth."
• "Authorities said global economic conditions turned out to be more resilient than earlier thought."
• "The government is expecting strong AI related demand and high gold prices to support the city state's trade performance in Q4."
• "Well, we were expecting the third quarter to be revised up to 4%. So, it's slightly better than expected on a year-on-year basis."
• "I think the upgrade of the official growth forecast to around 4% suggests that fourth quarter will slow a little bit but should still be around the 3% yearon-year handle."
• "I think call inflation is coming down very nicely, you know, to the 0.5% range that they have forecast for this year."
• "So I think there is no urgency for them to tweak monetary policy settings from here."

10. Synthesis and Conclusion

Singapore's economy has demonstrated remarkable resilience, leading to a significant upgrade in its annual GDP growth forecast. The third quarter saw a strong performance driven by manufacturing, wholesale trade, and finance & insurance, supported by better-than-expected global economic conditions and domestic strengths. While non-electronics exports faced headwinds, the outlook for Q4 and beyond is bolstered by anticipated AI-related demand and high gold prices. However, potential tariff escalations remain a risk for future export growth. The services sector exhibits a mixed performance, with uneven growth expected to continue. On the monetary policy front, the MAS is likely to maintain its current stance, given moderating inflation and a less extreme Singapore dollar, providing a stable environment for continued economic activity.