Singapore slashes 2025 growth forecast amid trade war risks

[SINGAPORE] Singapore has cut its economic growth prediction for 2025 to a range of 0.0 to 2.0 percent, citing the impact of new US tariffs on global commerce and the economy, as well as the country's first-quarter performance. The Ministry of Trade and Industry (MTI) had earlier forecast a growth rate of 1.0 to 3.0 percent.

The revision comes amid growing concerns over the ripple effects of US trade policies, particularly the latest round of tariffs targeting Chinese electric vehicles, semiconductors, and clean-energy products. Analysts warn that these measures could disrupt supply chains across Asia, where many economies—including Singapore—rely heavily on trade and manufacturing. The city-state’s open economy, which depends on exports and foreign investment, is especially vulnerable to such geopolitical shifts.

MTI predicted that sweeping US tariffs and extended trade disputes with China would have a significant impact on global trade and economic activity. "A drop in external demand will have a negative impact on the growth prospects of our region's economies, in part because of the tariffs' broader impact on global trade and growth."

Singapore’s trade-dependent sectors, including electronics and precision engineering, are already showing signs of strain. Recent data indicates a slowdown in factory output and export orders, reflecting weaker demand from key markets like China and the US. The semiconductor industry, a cornerstone of Singapore’s manufacturing base, is particularly at risk as global tech demand softens amid rising trade barriers.

"Business and consumer sentiment will also be dampened, thereby crimping domestic consumption and investment in many economies," according to a statement released today. MTI stated that the scenario will continue to evolve as the US and other economies consider their options in the face of increased market volatility. Consequently, there are significant downside risks to the world economy.

Economists have pointed to the risk of stagflation—a combination of sluggish growth and persistent inflation—if trade disruptions lead to higher import costs while dampening productivity. Singapore’s central bank has maintained a cautious monetary policy stance, but further external shocks could complicate efforts to balance inflation control with economic support measures.

It said that the increase in uncertainty may result in a larger-than-expected slowdown in economic activity as businesses and consumers take a "wait-and-see" approach before making spending decisions. Meanwhile, more tariff measures, including retaliatory tariffs, might spark a full-fledged global trade war, disrupting global supply chains, raising costs, and resulting in a much worse global economic decline.

MTI also identified risks to financial stability, stating that disruptions to the global disinflation process, as well as increased recession concerns in both advanced and emerging nations, might cause destabilizing capital flows, exposing vulnerabilities in banking and financial institutions. "Against this backdrop, MTI believes that Singapore's foreign demand outlook for the remainder of the year has worsened significantly. This has deteriorated the outlook for Singapore's outward-oriented sectors," it stated. Softer global demand is projected to have a particularly negative impact on the industrial sector.

Given the large downside risks, MTI stated that it would continue to closely watch global and domestic developments and alter its growth outlook as needed. Meanwhile, MTI said that, based on preliminary estimates, the country's GDP expanded by 3.8% year on year in the first quarter of 2025, slower than the previous quarter's growth of 5.0%.

On a quarter-on-quarter, seasonally adjusted basis, the economy contracted by 0.8 per cent, a reversal from the 0.5 per cent expansion in the fourth quarter of 2024.

The weaker-than-expected Q1 performance has raised concerns about Singapore’s ability to sustain its recovery momentum. While the services sector, including tourism and hospitality, has shown resilience, analysts caution that a prolonged downturn in manufacturing could spill over into other segments of the economy, further dampening growth prospects for the year.

"This was due to sequential declines in manufacturing and some outward-oriented services sectors, such as finance and insurance, in tandem with slowing external demand,” it said.