Singapore's economy grows beyond expectations despite risks from Iran war
John Power
Singapore's GDP grew 6% year-on-year in Q1 2026, surpassing the 4.6% forecast, driven by booming AI chip demand. The government warns of risks from the Middle East conflict and rising energy prices.
According to data released by Singapore's Ministry of Trade and Industry on April 14, the country's gross domestic product (GDP) for the first quarter of 2026 rose 6% from the same period last year, well above the preliminary forecast of 4.6%. On a quarter-on-quarter basis, seasonally adjusted GDP increased by 1%.
The Ministry stated that the growth was mainly due to a strong recovery in the wholesale trade, manufacturing, finance, and insurance sectors. In particular, booming demand related to artificial intelligence (AI) boosted the machinery, equipment, and supplies segment in wholesale trade, as well as the electronics and precision engineering clusters in manufacturing. "AI demand is very strong," becoming a key driver that offset the impact of the US-Israel war in Iran and high energy prices.
Despite the positive outlook, Singapore's Trade Ministry maintained its full-year 2026 growth forecast at 2-4%, while warning of "downside risks" from rising energy and fertilizer prices due to the closure of the Strait of Hormuz to most vessels. "These factors will pressure global economic activity in the second half of the year, but AI demand remains strong and will continue to support growth for regional economies," the statement noted.
Mr. Khoon Goh, Head of Asia Research at ANZ, commented that the Q1 GDP data "may not fully reflect" the impact of the Middle East crisis. "The effects will be more pronounced in Q2, but the solid Q1 GDP provides a good foundation for the rest of 2026. The AI investment frenzy is fueling the manufacturing sector, and as long as Singapore's economy is not short of oil, manufacturing will continue to lead growth," he told Al Jazeera.
Nearly three months after the Iran conflict began, the collapse of maritime traffic through the Strait of Hormuz amid the Iranian and US blockade continues to weigh on the global economy. The United Nations last week cut its 2026 global growth forecast from 2.7% to 2.5% due to the conflict's impact.
Mr. Anthony Tay, Associate Professor of Economics at Singapore Management University, said the business community in Singapore received the GDP figures "with more relief than excitement," after growth forecasts were revised upward thanks to the AI wave. "The general forecast for the full year 2026 among domestic economists is around 3.6%, a brighter outlook than previous quarters, but it comes with a recognition of significant downside risks," he noted.
Singapore, one of the most trade-dependent economies globally, plays a major role in the AI race due to its position as a producer of semiconductors and semiconductor equipment. The country accounts for about 10% of global semiconductor output and 20% of global chip equipment production.
