Singapore's economy grew faster than expected in the first three months of the year. Strong demand for AI chips helped offset issues from the US-Israel war on Iran.
The Ministry of Trade and Industry reported on Monday that Singapore's gross domestic product (GDP) increased by 6% year-on-year in the first quarter. This was higher than the earlier estimate of 4.6%.
On a quarterly basis, GDP grew by 1% after adjusting for seasonal changes.
AI Demand Boosts Key Sectors
The Trade Ministry noted that growth was mainly driven by strong performances in wholesale trade, manufacturing, and finance and insurance.
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Start Your News DetoxSpecifically, high demand for AI-related products boosted the machinery, equipment, and supplies segment of wholesale trade. It also helped the electronics and precision engineering parts of the manufacturing sector.
The ministry kept its 2026 growth forecast between 2% and 4%. However, it warned of "downside risks" from rising energy and fertilizer prices. These increases are due to the closure of the Strait of Hormuz to most shipping.
The ministry stated that these factors will slow global economic activity for the rest of the year. However, robust AI-related demand should continue to support growth in regional economies.
Economic Outlook and Global Impact
Khoon Goh, head of Asia research for ANZ, believes the current GDP figures might not fully show the impact of the Middle East crisis.
Goh told Al Jazeera that the full effect will likely be clearer in the second quarter. However, the strong first-quarter GDP provides a solid foundation for the rest of 2026. He added that the AI investment boom is powering manufacturing, which will continue to drive growth.
The ongoing war has led to shipping disruptions in the Strait of Hormuz. This continues to affect the global economy.
Last week, the United Nations lowered its 2026 global economic growth forecast to 2.5% from 2.7%, citing the conflict's impact.
Anthony Tay, an economics professor at Singapore Management University, said Singapore's latest GDP figures bring "more relief than glee." This is because local economists had already raised growth expectations due to the AI boom.
Tay noted that local forecasters expect about 3.6% growth for all of 2026. This is a brighter outlook than in previous quarters, despite significant risks.
Singapore is a major player in the global AI rollout. It produces semiconductors and semiconductor equipment. The country accounts for about 10% of global semiconductor production and 20% of semiconductor chip equipment production.
Yeow Hwee Chua, an economics professor at Nanyang Technological University, questioned whether this strong growth will lead to broader economic expansion and stronger household confidence.
Chua told Al Jazeera that a 6% year-on-year figure is strong for a mature economy like Singapore. He called it encouraging but advised caution due to Singapore's high reliance on global demand and external conditions.
