Blog

[SINGAPORE] Full-year growth for 2025 may be firmer than previously forecast, with the economy’s output likely to be close to potential, the Monetary Authority of Singapore (MAS) said on Wednesday (Jul 30).

This means the output gap may narrow to nearly zero for the year, in contrast to the negative output gap predicted at MAS’ last macroeconomic review in April. A negative output gap means the economy has spare capacity, and is associated with deflation.

MAS noted that Singapore escaped a technical recession – two straight quarters of quarter-on-quarter contraction – in the second quarter, thanks to export front-loading ahead of US tariffs.

The improved forecast reflects stronger-than-expected growth in the first half. This is even as growth is expected to slow in H2 2025, as export-oriented sectors face softer activity.

Singapore’s official full-year growth forecast range remains at 0 to 2 per cent.

But Bank of America analysts believe that MAS now sees full-year growth coming in closer to – or marginally above – 2 per cent, up from a possible forecast of 1.3 per cent in April.

Sectoral outlook

Despite progress in US trade talks with partners such as China and the European Union, tariffs on Singapore’s trading partners – particularly those in Asia – will likely rise above the base 10 per cent rate after Aug 1, said MAS.

This will indirectly affect Singapore through reduced exports of intermediate goods and services.

Meanwhile, even setting aside the effect of front-loading, demand is slowing – most notably in the US.

Private consumption also remained weak in Japan, as inflation eroded purchasing power; and in the Eurozone, where household sentiment weakened amid labour market concerns.

For the rest of 2025, Singapore’s trade-related sectors could experience “some payback” after earlier front-loading, while underlying demand could also be weighed down.

Lingering uncertainties over the global trade environment are likely to weigh on modern services, including professional services and financial services.

In financial services, lending activity has softened since Q4, with reduced loans to corporates and non-bank institutions as firms remain cautious about long-term investments.

Continued uncertainty could further constrain credit demand and weigh on banking sector growth – but financial market activity could provide support through net fees and commissions, said MAS.

The broader economic slowdown might spill over into domestic-oriented sectors, such as retail, as well as food and beverage, though the impact should be cushioned by “generally healthy” household balance sheets and government support.

With uncertainty likely to persist, Singapore’s growth trajectory “would be unlike previous downturns”, said MAS.

In past downturns, economic output fell sharply by 5 per cent or more within a year of peaking, and rebounded decisively.

But now, firms remain wary and may put longer-term plans on hold. Business expenditure might thus decline gradually, extending the drag on gross fixed capital formation and hence gross domestic product growth over a more prolonged period.

In the second half, labour demand could also continue softening as growth slows and firms hold back on expansion plans, said MAS.

In a separate release on Wednesday, the Manpower Ministry said it expects employment to keep growing, but at a slower pace than in 2024.

In the near term, employers should be able to absorb slower growth by limiting hiring and adjusting wages, rather than cutting headcount significantly, said MAS. But greater labour market slack could emerge if the growth slowdown is deeper and more protracted.

Global growth

Singapore mirrors the global picture, where growth was similarly lifted by front-loading, noted MAS. Global GDP growth is now expected at around 2.8 per cent in 2025, up from 2 to 2.5 per cent projected in the April review.

But the global outlook remains muted as the US has alluded to potentially higher tariffs, and as the effects of front-loading wane.

In China, domestic demand is expected to remain lacklustre, with only modest consumption gains as the property sector struggles.

Across Asean, weak purchasing power and its spillover effects on employment will dampen consumer spending. Asian and Eurozone firms will likely delay capacity expansion amid uncertainty.

“Growth in 2026 will continue to be weighed down by uncertainties as the second-round effects of trade frictions work through the global economy, potentially bringing global output even further below trend,” said MAS.