DBS: Singapore is at a critical moment, economic growth is expected to slow down next year but there is a buffer. | Lianhe Zaobao
DBS Bank predicts that Singapore's economic growth will slow to 1.8% next year, down from 4.0% this year. Tariffs and the technology cycle are the main challenges, but strong performance in modern services and construction will provide a buffer. Global trends such as geopolitical economic fragmentation and climate change will continue to impact Singapore's economy, with trade activity expected to be subdued by 2026
Singapore is at a critical moment, and after successfully navigating 60 years of independence, its economic growth resilience will be tested in 2026.
At that time, it will face "two major challenges" - tariffs and the technology cycle. DBS predicts that Singapore's real GDP growth rate will be 1.8% next year, close to its potential growth rate, but far below this year's forecast of 4.0% growth.
In a report released on Tuesday (December 2), DBS noted that this forecast takes into account the slowdown in trade-related growth due to tariff challenges and uncertainties, but the strong performance of modern services and construction will provide some buffering effect.
The impacts of global trends such as geopolitical economic fragmentation, rapid technological iteration, and climate change will continue to persist in 2026 and beyond.
DBS expects that Singapore's trade-related activities will be suppressed in 2026 due to various factors, consistent with the trend of weak global trade cycles.
First, the trade drag will stem from three negative impacts of U.S. tariffs: 1) the lagging effect of global tariff increases, 2) the downside risks brought by additional tariffs on the semiconductor industry, and 3) the gradual unwinding of pre-shipment trade activities that were impacted this year.
Technology Industry Upcycle May Slow
In addition, the previously strong upcycle in the technology industry that supported electronic product shipments may slow down.
The World Trade Organization predicts that the global merchandise trade volume growth rate will drop to 0.5% in 2026, down from the strong growth momentum of over 2% in 2024 and 2025. The upcycle for electronic products has been ongoing since mid-2024, continuing until October 2025.
Further Reading
Most Industries Show Steady Performance in Q3, Economists Raise Singapore's Economic Forecast for This Year and Next Economic Growth Exceeds Expectations Amid Tariff Impact, Monetary Authority: Will Decline Next Year According to DBS, this cycle is nearing its end. It stated that if the support brought by the artificial intelligence (AI) boom weakens and the U.S. threatens to impose tariffs on semiconductors is enforced, then Singapore's electronics cycle will return to normal, and the downward impact will depend on the final situation.
DBS said, "The modern service industry, covering finance and insurance, information and communication technology, and professional services, can provide a buffer for Singapore's overall economy in the coming quarters."
Over the past five to ten years, the modern service industry has achieved a higher real growth rate and lower volatility compared to the service industry related to manufacturing and trade. DBS expects "this trend to continue until 2026."
It believes that although modern service enterprises still face some ongoing external challenges, many favorable factors, such as a loose financial environment, strong digital development in artificial intelligence, and continued attention to Singapore as a trusted business hub, will support the growth prospects of the modern service industry in 2026.
Local construction industry may perform well in the coming years
Singapore's construction industry is the largest sector in the domestic market and is expected to perform well in 2026 and the coming years. DBS anticipates that large multi-year transportation infrastructure investment projects (such as the fifth passenger terminal at Changi Airport, Tuas Port, and the North-South Corridor), hotel project expansions (Marina Bay Sands' fourth tower and Resorts World Sentosa), and the launch of residential projects will boost the activity in the construction industry.
The median construction demand for 2026 is expected to be SGD 42.5 billion, significantly higher than the recovery period for the construction industry post-COVID-19 (2022 to 2024) and pre-pandemic (2015 to 2019).
It believes that the downward risks facing Singapore's economic growth in 2026 mainly come from external factors.
Firstly, any further escalation of tariff tensions is a concern, given the strained U.S.-China trade relations and the high industry tariff threats facing products like semiconductors. Additionally, the overvaluation of financial markets could lead to a disorderly and sudden reversal, which is another significant downside risk that could severely impact investor and business confidence, as well as investment commitments
