[SINGAPORE] Private-sector economists and the Ministry of Trade and Industry (MTI) warned that the second half of 2025 will remain challenging, even as the official full-year growth forecast was upgraded on Tuesday (Aug 12).
After the economy’s strong second-quarter growth of 4.4 per cent – revised up marginally from the advance figure of 4.3 per cent – MTI raised its full-year forecast range to between 1.5 and 2.5 per cent, from between zero and 2 per cent previously.
The ministry noted that the revision largely reflects the first half-year’s better-than-expected performance, with key economies more resilient than expected since the US announced tariffs in April.
It warned: “The economic outlook for the rest of the year remains clouded by uncertainty, with the risks tilted to the downside.”
Economists agreed that growth will slow in H2, compared to the first half. Most maintained their own full-year forecasts, though several had already raised theirs at the release of advance Q2 data in July.
Technical recession ahead?
One exception was UOB, which raised its 2025 growth forecast slightly to 2.2 per cent, from 2.1 per cent previously. This factors in the latest data and the recent easing of trade tensions, said associate economist Jester Koh.
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But UOB still foresees a slower H2, and even a “short-lived technical recession” with quarter-on-quarter contractions in Q3 and Q4.
Bank of America (BOA) economists Ang Kai Wei and Rahul Bajoria noted that a full-year expansion of 1.5 per cent would imply “a very sharp technical recession the next two quarters”.
They thus consider the lower end of MTI’s forecast range as “highly improbable”, and growth in the 2 to 2.5 per cent range as being most probable.
Looking ahead, MTI flagged three downside risks to growth: re-escalation of tariff actions; sharper-than-expected tightening of global financial conditions sending a shock to financial markets; and escalation in geopolitical tensions.
Slower expansion in outward-oriented sectors is expected to drag down Singapore’s overall growth in H2, with manufacturing in particular expected to weaken as tariffs weigh on demand, even as “bright spots” in the transport engineering and precision engineering clusters remain, said the ministry.
Gains in the wholesale trade as well as transportation and storage sectors are similarly expected to slow for the remainder of 2025 due to waning front-loading activities and softening global trade.
Meanwhile, finance and insurance could see dampened performance on “fragile business growth and tepid consumer spending”; and consumer-facing sectors such as retail trade and food and beverage services are anticipated to stay lacklustre.
Weakness anticipated
In H2, economists expect the front-loading boost to exports – due to the US’ 90-day tariff pause – to dissipate, possibly accompanied by payback effects.
Tariffs themselves will dampen growth. While Singapore faces the lowest baseline rate of 10 per cent, it remains exposed to spillovers from trade frictions, they noted.
DBS maintained its full-year forecast at 2 per cent, but senior economist Chua Han Teng expects expansion to moderate in the trade-related sectors of manufacturing, wholesale trade, as well as transport and storage.
Economists also flagged the risk of the US’ threatened sectoral tariffs.
Recent engagements suggest that Singapore’s policymakers are increasingly concerned about sectoral tariffs, said RHB group chief economist Barnabas Gan and associate research analyst Laalitha Raveenthar.
DBS’ Chua warned that if “sky-high sectoral tariffs” are imposed, the weighted effective tariff rate on Singapore’s exports to the US would exceed the current 7.8 per cent rate estimated by the Monetary Authority of Singapore in July.
The city-state’s growth outlook seems more sensitive to pharmaceutical than semiconductor tariffs, said the BOA team. Pharmaceuticals account for 43.2 per cent of US imports from Singapore, against semiconductors’ 9.7 per cent share.
Tariffs on the latter might also be mitigated by exemptions for companies with US-based investments and structural demand in areas such as artificial intelligence (AI), they added.
Economists noted that continued tariff uncertainty could also keep business sentiment subdued.
Consumer-facing sectors may face increasing headwinds from a cooling domestic labour market and a “somewhat challenging” recovery in tourist arrivals, said UOB’s Koh.
He pointed to early signs of a Q3 slowdown: a quarterly contraction in the Q2 composite leading index – a forecasting tool comprising several indicators – and softening in July’s purchasing managers’ index.
Caution and optimism
RHB stayed cautious on upgrading its 2 per cent full-year forecast, pointing out the continuing US-China and US-India tariff negotiations, sectoral uncertainties and fading front-loading effects.
Yet the team also noted a potential upside risk towards 3 per cent, supported by clarity on tariff rates among major trading partners; improved risk appetite; and resilient year-to-date growth in Singapore.
Maybank also kept its full-year forecast – but it was already the most bullish, at 3.2 per cent.
Analysts Chua Hak Bin and Brian Lee acknowledged the effect of front-loading but said that “the fears of a sharp pullback in trade in the second half are overstated”.
The US’ softer import and inventory growth in Q2 “does not suggest massive front-loading”, they said. Instead, they attributed stronger Singapore and regional trade volumes to “the diversion and rechannelling of US demand away from Chinese exporters”.
The extension of the US-China trade truce to mid-November reduces the near-term risk of trade disruption, while broadening global AI demand should continue to drive semiconductor and electronics demand, they added.
While they expect some moderation in manufacturing and export growth in H2, they do not foresee a contraction or major payback from front-loading.
“Falling interest rates, a construction boom, and generous fiscal support will help cushion the blow from higher US tariffs,” they said.
They also expect Singapore Prime Minister Lawrence Wong to announce more fiscal support for companies hit by US tariffs in his National Day Rally speech on Aug 17, saying: “There is ample fiscal dry powder, given the accumulated fiscal surplus of about S$14.3 billion, which can be tapped upon.”
