Singapore’s economy posted a smaller-than-expected year-on-year expansion in the first quarter of 2026, as gains in local manufacturing and trade were partly offset by spillovers from the war in the Middle East.
The Monetary Authority of Singapore (MAS) said on Tuesday that gross domestic product rose 4.6% in the three months to March 31, below market expectations of 5.4% and a clear deceleration from the 6.9% growth recorded in the prior quarter.
On a quarter-on-quarter basis, GDP contracted 0.3%, a touch milder than the anticipated 0.5% decline but a sharp reversal from the 2.1% increase seen in the preceding quarter.
The MAS described the advance GDP print as reflecting an anticipated moderation in trade and modern services activity after a strong showing in the previous quarter. At the same time, the central bank noted that manufacturing output - notably electronics - remained resilient, supported by robust artificial intelligence-related investment.
Against this backdrop, the MAS flagged elevated uncertainty linked to shipping through the Strait of Hormuz, saying this dynamic has already pushed up fuel export costs for the island state. Those higher energy import costs have led the central bank to expect greater pass-through into prices, which in turn supports its view that inflation will tick up in the coming quarters.
To address the inflationary pressures associated with rising imported energy prices, the MAS implemented a modest tightening of monetary policy on Monday. The central bank increased the rate of Singapore dollar appreciation permitted under its Singapore Dollar Nominal Effective Exchange Rate band (S$NEER) - the MAS’ principal policy instrument for influencing overall monetary conditions.
The MAS explained that by allowing for stronger Singapore dollar appreciation under the S$NEER, it can help restrain import-driven inflationary pressures.
“Singapore’s imported energy costs have already risen. Prices of a wider range of imported goods and services are expected to increase in the quarters ahead. Consequently, MAS Core Inflation will pick up and remain elevated over the next few quarters,” the central bank said.
Reflecting that assessment, the MAS raised its inflation forecasts for 2026. It now sees core inflation at 1.5% for the year, up from its prior projection of 1.0%, and lifted its consumer price index-all items inflation forecast to 2.5% from 2.0%.
Taken together, the data and the MAS response underline a trade-off facing policymakers: while domestic manufacturing and technology-related investment continue to support growth, external energy price shocks linked to geopolitical tensions are exerting upward pressure on import costs and consumer prices. The central bank’s adjustment to the S$NEER is intended to blunt those import-price effects without changing short-term interest rates directly.
How these dynamics evolve in coming quarters will depend on developments in energy markets and shipping routes that affect fuel and transport costs, and on how those cost pressures feed through to energy-intensive sectors such as petrochemicals and transportation.