Singapore’s GDP continued to expand in 1Q26 despite the war. Here’s why we remain bullish.

• Singapore’s economy grew 6.0% year-on-year (YoY) in 1Q26, extending the 5.7% expansion in 4Q25, driven by AI-related demand across the electronics, precision engineering, and wholesale trade sectors.
• MTI maintained its full-year 2026 GDP growth forecast at “2.0 to 4.0 per cent”, supported by a stronger-than-expected 1Q26 outperformance, even as global headwinds from the US-Israel-Iran conflict have intensified.
• The US-Israel-Iran conflict has tightened energy supplies via the Strait of Hormuz blockade, weighing on Singapore’s chemicals cluster and transport-related activities, while also reinforcing safe-haven capital inflows into the financial system amidst heightened geopolitical uncertainty.
• Nvidia’s first Singapore research hub, announced at the ATxSummit on 20 May 2026, strengthens the city-state’s long-term positioning in AI development, particularly embodied AI, adding further depth to its technology ecosystem beyond the current capex cycle.
• We maintain a constructive view on Singapore equities, with an STI target of 5,987 by end-2028 and approximately 5% annual dividend yield. Our outlook is underpinned by four key structural drivers: (i) sustained AI-related demand, (ii) Singapore’s strengthening safe-haven status and banking inflows, (iii) industrials-led earnings growth, and (iv) capital market revitalisation supporting broader liquidity and potential mid-cap re-rating.

Singapore’s economy delivered another robust quarter. Real GDP expanded 6.0% year-on-year (YoY) in 1Q26 (4Q25: +5.7%), the strongest YoY reading since the AI-investment-led acceleration began in late 2024. On a seasonally adjusted quarter-on-quarter (QoQ) basis, growth moderated to 1.0% from 1.3% in 4Q25, reflecting a high base rather than a loss of structural momentum.

The Ministry of Trade and Industry (MTI) maintained its full-year 2026 GDP forecast at “2.0 to 4.0 per cent” despite acknowledging that the global economic backdrop has deteriorated since its February upgrade. The benchmark is unchanged because the 1Q26 outperformance provides a sufficient buffer against near-term macro risk. Downside risks, however, have risen significantly, with MTI citing the US-Israel-Iran conflict as the primary headwind.

Even so, we remain constructive on Singapore’s outlook, as the underlying drivers of growth continue to remain resilient. Two recent developments further reinforce this view:

• First, Nvidia confirmed it will open its first Singapore research hub, focusing on embodied AI and AI infrastructure efficiency.
• Second, Singapore’s safe-haven status has attracted fresh capital, from Gulf investors, into its banking system, benefiting DBS, OCBC, and UOB through higher wealth management mandates and fee income.

Table 1: Singapore 1Q26 GDP Snapshot

Indicator	1Q26	4Q25
Real GDP Growth (YoY)	+6.0%	+5.7%
Real GDP Growth (QoQ)	+1.0%	+1.3%
Manufacturing (YoY)	+7.9%	+11.4%
Construction (YoY)	+11.8%	+4.6%
Wholesale Trade (YoY)	+11.7%	+9.9%
Finance & Insurance (YoY)	+5.7%	+3.7%
Non-Oil Domestic Exports (YoY)	+9.6%	+8.5%
Full-Year 2026 GDP Forecast	2.0% to 4.0% (maintained)	1.0% to 3.0%*
*Before the Middle East conflict, MTI upgraded its forecast in February to 2.0% to 4.0% from 1.0% to 3.0%. Source: Ministry of Trade and Industry (MTI), Press Release, 25 May 2026.

AI demand remains the structural anchor

The electronics and precision engineering clusters within manufacturing were the primary growth drivers in 1Q26. Manufacturing expanded 7.9% YoY (4Q25: +11.4%), with the sequential moderation largely attributable to a base effect rather than a slowdown in demand. The wholesale trade sector grew 11.7% YoY, led by surging volumes in telecommunications and computer equipment as well as electronic components, reflecting continued AI infrastructure procurement globally.

MTI’s forward guidance is explicit: sustained global AI-related capital expenditure (capex) will remain a key driver of electronics and precision engineering growth for the rest of 2026. Demand for networking chips, memory chips, and semiconductor equipment (all tied to the data centre build-out cycle) is expected to remain robust. The strong performance of the electronics cluster is further expected to generate positive spillover effects into the machinery, equipment, and supplies segment of wholesale trade.

Hyperscaler commitments further substantiate this assessment. Amazon, Alphabet, Microsoft, Meta, and Oracle have collectively guided toward USD 660 billion to USD 690 billion in 2026 capital expenditure, approximately double 2025 levels, with roughly 75% allocated to AI infrastructure. TSMC raised its full-year 2026 revenue growth guidance to above 30% in its 1Q26 results, describing AI demand as “extremely robust”.

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Energy-exposed sectors face pressure, services remain resilient

The US–Israel–Iran conflict has introduced a material but contained external shock to Singapore’s economy. Disruptions linked to the Strait of Hormuz have tightened global energy and key input supplies, driving higher oil, fertiliser, and aluminium prices. This has weighed on Singapore’s fuels and chemicals segment within wholesale trade, as well as the broader chemicals cluster in manufacturing, with some downstream petrochemical and specialty chemical players reporting force majeure. Refinery utilisation and petrochemical cracker run rates have eased, while elevated fuel costs have also softened the outlook for air and water transport.

However, the overall impact remains uneven rather than economy-wide. MTI’s downside scenarios, including a (i) sustained energy price spike, (ii) renewed tariff escalation, and (iii) pullback in AI-related spending, point to a moderation in growth rather than a broad-based downturn. Singapore’s direct export exposure to the Middle East is relatively limited at around 2% of total goods exports, while external demand for AI remains robust, driven primarily by US and Asian hyperscalers.

At the same time, service activity has remained resilient. The finance and insurance sector expanded 5.7% YoY in 1Q26, accelerating from 3.7% in 4Q25, supported by broad-based strength in banking, fund management, and securities trading. According to MTI, heightened investor repositioning and hedging activity during the conflict period has also supported fee and commission income. In addition, we have also previously highlighted that Singapore may benefit from ongoing safe-haven capital inflows, providing an additional structural tailwind to the financial sector amidst elevated geopolitical uncertainty.

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NVIDIA’s Singapore hub: Embodied AI adds a new growth layer

On 20 May 2026, Nvidia announced it would open its first Singapore research hub, its second such facility in the Asia-Pacific region, focused on advancing embodied AI and improving AI infrastructure efficiency. The lab will collaborate with university researchers, industry partners, and government agencies. The announcement coincided with Singapore’s ATxSummit and a broader set of government AI deployment initiatives, including a new testbed for AI robotics and a Centre for Intelligent Robotics, with participation from Certis, DHL, Grab, and QuikBot.

For Singapore’s economy, the implications are twofold.

First, Nvidia’s growing research presence strengthens Singapore’s position in the AI industry. It also signals that the country is preparing for the next phase of AI growth, including robotics, autonomous vehicles, and smart infrastructure, rather than focusing only on data centres.

Second, the move reinforces Singapore’s appeal as a hub for global technology investment. This supports the creation of high-value jobs and drives demand for specialised professional services across the economy. This, in turn, could also drive Singapore’s economic growth.

STI Outlook remains constructive

Singapore’s 1Q26 GDP data reinforces the structural investment thesis underpinning our constructive view on Singapore equities. The AI-driven demand cycle continues to support broad-based growth across manufacturing, wholesale trade, and technology services.

We maintain our STI target of 5,987 by end-2028, based on 15x FY2028E price-to-earnings, implying approximately 18% upside from current levels (as of 25 May 2026), alongside an average dividend yield of around 5.0%. Our outlook continues to be anchored by four structural drivers.

First, the durability of AI-related demand. Singapore’s electronics and precision engineering clusters remain directly exposed to one of the strongest areas of global capital expenditure. MTI has reaffirmed AI and electronics demand as a key growth driver for the remainder of 2026, while Nvidia’s commitment to establish a research hub in Singapore further strengthens the long-term investment and innovation ecosystem beyond the current capex cycle.

Second, Singapore’s strengthening safe-haven status within the banking sector. DBS, OCBC, and UOB collectively represent a significant weighting within the STI and are seeing continued inflows into wealth management mandates and fee-generating businesses as regional and global capital seeks stability. We expect safe-haven flows into Singapore to persist amidst ongoing geopolitical uncertainty. Hence, Singapore’s banking sector could continue benefiting from shifts in capital allocation and investment flows arising from the conflict environment. Moreover, the Singapore dollar’s managed appreciation framework provides a further macro stabiliser amidst oil-driven imported inflation. This reinforces its role as a wealth preservation currency and indirectly supports continued capital inflows into SGD-denominated assets.

Third, industrials are emerging as a key driver of STI earnings growth. Beyond financials, which continue to anchor index stability and dividends, industrials are increasingly contributing to earnings expansion across the Singapore market. Companies such as ST Engineering and Yangzijiang Shipbuilding are benefiting from strong order visibility, rising defence and infrastructure spending, and sustained demand in global shipping and engineering cycles. Record backlogs provide multi-year earnings certainty, while improving contract wins are supporting upward revisions to forward earnings expectations. This segment is therefore playing a growing role in driving overall STI earnings growth, complementing financials which remain the primary source of income yield for the index.

Fourth, Singapore’s capital market revitalisation and deepening liquidity cycle. MAS-led initiatives such as the Equity Market Development Programme, Value Unlock Package, and enhancements to the GEMS research ecosystem are beginning to address structural constraints in liquidity, research coverage, and mid-cap participation. Recent SGX data for April 2026 reinforces this shift, with Securities Daily Average Value (SDAV) at SGD 2.1 billion and small- and mid-cap turnover rising alongside sustained institutional net buying.

Overall, these trends point to an early-stage expansion in market breadth and participation. While large caps are likely to lead the initial re-rating, improving liquidity, ETF flows, and research depth should progressively support valuation re-rating across small and mid caps, reinforcing a more balanced and better-functioning Singapore equity market.

For investors seeking diversified exposure to this structural growth story, we continue to recommend positioning through the Amova Singapore Dividend Equity SGD Fund, the Amova Singapore STI ETF (SGX: G3B), and the LionGlobal Singapore Trust Fund (higher SMID exposure).

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Declaration

For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) and the analyst who produced this report hold a NIL position in the abovementioned securities.

This research report was prepared with the assistance of artificial intelligence (AI) tools. iFAST Financial Pte Ltd does not rely exclusively on AI for content generation; the content of this report, including all investment theses, ratings, price targets and conclusions, has been independently reviewed and verified by the research analyst(s) to ensure accuracy and professional integrity.