Singapore's Growth Engines Remain Intact Despite Rising Energy Pressures

(MENAFN- ING) Singapore industrial output came in higher than expected

Industrial production recorded a strong upside surprise in March, expanding by 10.1% year-on-year, well above market expectations of around 6%. The surge was driven primarily by electronics output, which rose 30% YoY, almost entirely on the back of a sharp recovery in semiconductor production. Electronics accounted for the majority of the increase in industrial production during the month.

The strength in electronics production was underpinned by a pronounced acceleration in electronics exports, which jumped 74% YoY in March, lifting overall first-quarter electronics export growth to 58% YoY. This performance is consistent with the strong momentum in AI‐related exports observed in other Asian economies, including Taiwan and Korea.

Precision engineering output also remained robust, growing 14% YoY and ranking as the second-largest contributor to overall IP growth. The segment accounted for roughly 18% of total industrial production growth in March, underscoring the broadening momentum beyond semiconductors.

Impact of higher oil prices yet to be fully felt

High‐frequency indicators suggest that activity in Singapore's externally oriented sectors has so far remained broadly resilient following the onset of the Middle East conflict. In particular, port activity stayed above its historical average in March, pointing to limited near‐term disruption to trade and logistics flows.

Both oil import and export growth turned positive in March, reversing the contraction seen in the months prior. This improvement likely reflects higher global oil prices. Notably, the oil trade balance slipped into deficit for the first time since November 2025. This suggests that while the drag from higher oil prices on economic activity has been relatively muted so far, pressures will start to surface and are likely to intensify over the coming quarters.

Operating costs have already risen across transportation, logistics, and manufacturing, leading to margin compression. According to the Monetary Authority of Singapore's (MAS) estimates, energy‐related cost pressures are most pronounced in the wholesale trade sector, which accounts for around 19% of GDP. Roughly half of wholesale trade's input requirements are sourced from the energy‐intensive transport and storage sector – particularly water transport services – making it especially vulnerable to sustained energy price shocks.

At the industry level, petroleum, gas and electricity, petrochemicals, basic chemicals, transportation, and water services are identified as the most energy‐exposed sectors. In these industries, energy inputs account for more than 10% of total input requirements, implying limited capacity to absorb further increases in energy costs without a material impact on margins or downstream prices.

What this means for GDP growth

After a relatively strong first-quarter GDP growth of 4.6% YoY, we expect Singapore's GDP growth to moderate in the second half of the year as persistently higher energy prices weigh on costs and profitability.

That said, any slowdown is likely to be modest, as several offsetting factors remain in place. Policy measures aimed at cushioning household consumption should provide meaningful support, including utility rebates to offset higher electricity prices, cash handouts, and targeted sector‐specific assistance. In addition, public capital expenditure continues to be a key pillar of growth. Large‐scale projects – such as the development of Changi Airport Terminal 5, ongoing Housing & Development Board programmes, the construction of Cross Island Line Phase 2, and elevated defence spending – are helping to sustain overall economic momentum despite a more challenging external environment.

Within services, growth in the IT services segment (under the information and communications sector) has held up well, likely reflecting sustained demand for data hosting and digital infrastructure. Financial services have also remained resilient, as evidenced by the strength of equity markets and the Singapore dollar. The SGD continues to stand out as one of the few Asian currencies to post positive year‐to‐date returns, underscoring its perception as a relative safe haven amid heightened global uncertainty.

Overall, we maintain our relatively strong GDP growth target of 3.3% for 2026.

Singapore industrial production growth

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