Singapore GDP grows but outlook dims

[SINGAPORE] Singapore's economy expanded by 3.8% in the first quarter of 2025 compared to the same period last year, according to preliminary data from the Ministry of Trade and Industry (MTI). However, facing headwinds from global trade tensions, the government has revised its full-year GDP growth forecast downward.

The Q1 growth figures align with regional trends, as several Southeast Asian economies also reported modest but steady expansions. Neighboring Malaysia and Indonesia, for instance, posted growth rates of 3.5% and 4.1% respectively, reflecting a broader regional resilience despite global volatility. However, Singapore's heavy reliance on trade—with exports accounting for nearly 200% of its GDP—leaves it particularly vulnerable to shifts in international trade policies.

Robust Q1 Performance

The 3.8% year-on-year growth in Q1 2025 builds on Singapore's strong economic performance in 2024, where the economy grew by 4.4%, surpassing earlier forecasts. The latest figures indicate continued resilience, supported by key sectors such as manufacturing, wholesale trade, and finance and insurance.

Notably, the manufacturing sector, which contributes about 20% to Singapore's GDP, saw a 4.2% uptick in Q1, driven by strong demand for semiconductors and precision engineering products. This rebound follows a sluggish 2023, when global chip shortages and supply chain disruptions weighed heavily on output. Industry experts caution, however, that the sector's momentum could falter if U.S. tariffs disrupt export flows in the coming months.

Revised 2025 Growth Forecast

Despite the positive Q1 performance, MTI has adjusted Singapore's 2025 GDP growth forecast to a range of 0% to 2%, down from the previous 1% to 3% estimate. This revision reflects growing concerns over global trade dynamics, particularly the impact of new U.S. tariffs under the Trump administration.

Impact of U.S. Tariffs

The recent implementation of a 10% universal tariff by the U.S. has raised alarms among Singaporean officials. Prime Minister Lawrence Wong expressed concerns that this non-negotiable tariff could severely affect Singapore's trade-dependent economy, potentially leading to job losses and economic disruptions.

Singapore's trade with the U.S. accounted for nearly $60 billion in 2024, making it one of the city-state's top five trading partners. The new tariffs are expected to hit electronics, pharmaceuticals, and machinery exports hardest, sectors that collectively employ over 300,000 workers. In response, the government is reportedly exploring diversification strategies, including deepening trade ties with emerging markets in Africa and Latin America.

Monetary Policy Adjustments

In response to these challenges, the Monetary Authority of Singapore (MAS) has eased its monetary policy for the second time this year. The MAS reduced the appreciation rate of the Singapore dollar nominal effective exchange rate (S$NEER) policy band to mitigate the adverse effects of diminished global demand and tighter financial conditions.

Outlook and Risks

Looking ahead, Singapore's economy faces a complex landscape. While domestic factors such as easing monetary conditions and increased construction activity may provide some support, external risks remain significant. Analysts warn that the ongoing trade tensions, especially with major partners like the U.S., could dampen external demand, particularly in the latter half of 2025.

On the domestic front, the government's recent budget measures, including wage subsidies for affected industries and grants for small and medium enterprises (SMEs), are expected to soften the blow. However, economists stress that these measures may not fully offset the drag from weaker external demand, particularly if global trade tensions escalate further.

Singapore's economy demonstrated resilience in Q1 2025, but the downgraded growth forecast underscores the challenges posed by global trade uncertainties. The government's proactive monetary policy adjustments aim to cushion the impact, but continuous monitoring of international developments will be crucial for policymakers and businesses alike.