Singapore raises 2025 economic growth forecast but warns of uncertainty from US tariffs
(Photo credit: ST Photo/Chong Jun Liang)
Source: The Straits Times
Singapore’s Ministry of Trade and Industry (MTI) raised its 2025 economic growth forecast on a better-than-expected first half year performance, but warned that the outlook remains clouded by uncertainty over the potential impact of US tariffs - with risks to the economy still tilted to the downside.
The gross domestic product (GDP) growth forecast was raised to 1.5 per cent to 2.5 per cent, from an earlier range of 0 per cent to 2 per cent, MTI said on Aug 12.
“This (upgrade) largely reflects the better-than-expected performance of the Singapore economy in the first half of 2025,” it said in a statement.
The move came after the economy posted a surprisingly high year-on-year growth of 4.4 per cent in the second quarter of 2025, following a 4.1 per cent gain in the first three months – taking first-half growth to 4.3 per cent.
On a seasonally adjusted quarterly basis, the Singapore economy expanded by 1.4 per cent in the second quarter, rebounding from the 0.5 per cent contraction in the first quarter. MTI made the earlier forecast in April, days after US President Donald Trump announced his “reciprocal tariffs” policy that threatened to impose unprecedented duties on almost all exports to the world’s largest economy.
However, since then, most tariff rates have been negotiated at much lower levels. Also, in the meantime, companies worldwide rushed shipments to get ahead of the US tariffs. That resulted in an unseasonal surge in manufacturing and exports.
The phenomenon, known as front loading, pushed Singapore’s key exports growth up by 5.2 per cent year on year in the first six months of the year – again much higher than the 1 per cent to 3 per cent range forecast by Enterprise Singapore.
MTI said GDP growth in the second quarter was primarily driven by export-oriented sectors such as wholesale trade, manufacturing, finance and insurance, and transportation and storage.
“The wholesale trade and transportation and storage sectors were boosted by front-loading activities in the region ahead of the implementation of tariff measures by the US,” said MTI.
On the other hand, domestic sectors such as the food and beverage services shrank, due in part to a sustained increase in outbound travel by locals.
“The performance of most advanced and regional economies has been more resilient than expected as the US’ 90-day pause on its reciprocal tariffs postponed the potential negative economic impact, while front-loading activities during the tariff pause provided a temporary boost to production and exports.”
There has also been a de-escalation in trade tensions, with the US striking trade deals with several trading partners, including the European Union, Japan, South Korea and several South-east Asian economies, that led to a lowering of their tariffs compared to that announced earlier.
(Photo credit: MTI)
The US and China continue to be engaged in trade talks, with the 90-day tariff truce between the two countries extended for another three months on Aug 11.
However, the second half of 2025 is unikely to be the same as the first half.
While Singapore faces the lowest rate of 10 per cent reciprocal tariff, compared with much higher rates for most of its Asian peers - it still faces significant risk if President Trump decide to impose sectoral levies on its key exports such as pharmaceuticals and semiconductors.
The trade-driven economy also suffers if its trading partners experience lower economic growth.
Dr Beh Swan Gin, MTI’s Permanent Secretary said: “The growth of Singapore’s major trading partners in the second half of 2025 is expected to moderate from that in the first half, as the boost from front-loading activities dissipates and the US’ reciprocal tariffs take effect.”
At a press briefing on Aug 12 he said there are still lingering uncertainties due, in part, to the continued unpredictability of the US’ trade policies, including the timing and extent of the sectoral tariffs on pharmaceutical products and semiconductors - major Singapore exports.
“Against this backdrop, Singapore’s economic growth is expected to slow in the second half of the year compared to the first half because of slower growth in outward-oriented sectors,” he said.
MTI warned that new tariffs could lead to a renewed spike in economic uncertainty and cause businesses to suspend hiring and households to pull back on spending.
A shock to financial markets from worsening of global financial conditions could lead to destabilising capital flows that could trigger latent vulnerabilities in banking and financial systems.
Finally, potential escalations in geopolitical tensions could lead to supply disruptions in energy commodities and renewed pressures on global energy prices, said MTI.
Dr Beh said the pace of growth in Singapore’s manufacturing sector is projected to weaken in the coming quarters as the US’ tariffs weigh on demand in global end-markets. Meanwhile, a sogtening in global trade will also weigh on the growth of the wholesale trade and transportation and storage sectors.
Still, MTI pointed out, there are some bright spots within the economy, such as the transport engineering cluster given the sustained shift towards higher value-added aircraft maintenance, repair and overhaul works in Singapore.
The precision engineering cluster was another bright spot due to the continued ramp-up in capital investments by semiconductor manufacturers producing artificial intelligence-related semiconductors.
The Singapore central bank’s monetary policy stance remains appropriate after accounting for factors affecting domestic growth and inflation, MAS chief economist Edward Robinson said at the briefing.
The economy’s outperformance in the first half of the year also allowed the Monetary Authority of Singapore (MAS) to maintain its Singapore dollar policy stance at its July meeting, after back-to-back rounds of easing in January and April.
At the briefing, Mr Edward Robinson, MAS’s deputy managing director and chief economist, said keeping in view the factors affecting economic growth and inflation, the central bank’s stance remains appropriate.
“I would also add that a gradualist approach under conditions of uncertainty is useful as we update our assessment in a timely manner at our quarterly reviews,” he added.
MAS, which uses the currency to manage inflation, will next update its policy stance in October.