In a world more volatile and less predictable, public coffers should build buffers and aid with transformation.

By Selena Ling, Chief Economist and Head of OCBC Group Research

The global economy has developed a mischievous habit of embarrassing forecasters. Year after year, analysts predict sluggish growth, and year after year, the world manages to outperform its own obituary. Singapore, too, has quietly outpaced its typically conservative estimates.

Global growth held steady at 2.7 per cent, despite announced sweeping tariff hikes. Despite a forecast in April 2025 of 0 to 2 per cent growth, the Singapore economy grew by a whopping 4.8 per cent – a figure likely to be revised upwards following December’s upbeat industrial production data.

Yet this persistent mismatch between prediction and performance is less interesting for the error rate than for what it implies. We are no longer in a world where a steady set of assumptions will carry us forward.

In an era of geopolitical bargaining, AI-driven productivity shifts, and climate volatility, the question for countries like Singapore is not whether we can forecast the future accurately, but whether we can strategise for a future that may be difficult to forecast with great accuracy.

Singapore’s 2026 Budget arrives at precisely this juncture. After five years of shocks – pandemic, inflation, supply-chain reconfiguration and great-power rivalry – the global economy has been reshaped. The winners are countries that adapted quickly; the losers are those still waiting for the world of 2019 to return. But that world is not coming back.

The end of the old playbook

For decades, Singapore’s economic strategy was built on three stable assumptions. First, the world would trade more, not less. Second, capital and talent would move fluidly across borders. Third, technology would boost productivity faster than it displaced workers.

These assumptions made sense in a world where growth was positive-sum and geopolitics polite. Today, the organising principles of the global economy are being rewritten. Trade is being filtered through national security. Industrial policy has gone mainstream. Subsidies have replaced sermons about free markets. And economic alliances increasingly resemble strategic coalitions.

The polite word for this is “fragmentation”. The more accurate phrase might be “every nation for itself – with selective friends”.

Fortunately, Singapore does not enter this new era from a position of fragility. Growth may be uneven, but it is durable. The labour market is healthy. Our fiscal buffers remain strong. And diversification – once considered bureaucratic safety stock – has become a geopolitical moat.

But if resilience was the theme of the early 2020s, the mid-2020s will demand something harder: reinvention.

Budget 2026 as a strategic reset

Forecasting errors are one thing. Strategy errors are far more costly. The assumptions that guided Singapore through the last decade will not automatically deliver the next decade of prosperity. Budget 2026 therefore raises a more foundational question: What must Singapore reinvent to remain relevant when the global system is less cooperative yet more opportunity-rich?

Three areas stand out. First, our economic strategy must shift. Singapore has long prized efficiency and optimisation. But optionality – the ability to pivot when the world pivots – now matters more than linear planning. This means diversifying supply chains beyond “pure” cost considerations, building dual capabilities in both digital and industrial sectors and maintaining redundancy in critical systems.

This shift aligns with emerging global behaviours: the US is targeting semiconductors and green tech, China doubling down on industrial capacity, and ASEAN positioning itself as a node in a multipolar supply chain. Singapore cannot match others dollar-for-dollar on subsidies, but it can play to its strengths of neutrality, connectivity, predictability, and deep human capital. Budget 2026 will need to sharpen these advantages.

Market access and support for internationalisation could be ramped up through co-funding for overseas projects and the certification of standards. Soft power tools – trade facilitation, the conclusion of digital economy agreements and the ability to navigate trade controls – may matter more in mitigating global uncertainty and geopolitical risk.

Given the hike in carbon prices in 2026, there may also be stronger incentives for energy efficiency retrofits, support for carbon reporting capabilities and supply chain emissions compliance in jurisdictions like the EU, as well as more temporary and transitional assistance, whether through corporate income tax rebates or energy relief.

Second, our social contract must focus on transformation instead of transfers. Singapore has already deployed significant support in recent budgets to manage cost-of-living pressures. But besides regular doling out of CDC vouchers, Budget 2026 must move beyond cushioning discomfort to strengthening participation in future growth.

The world’s next wave of productivity will be powered by AI and advanced services. The premium will accrue not only to capital but also to workers who can operate, manage, or complement these technologies.

The education and skills ecosystem therefore needs new pacing – a faster cycle of training, transitions, and incentives for firms to redesign work rather than simply augment it with machines. Robots may replace some manual activities, but the ability to connect the dots and strategise still requires a mix of foresight and insight, aided by AI.

Support could come in a few buckets – such as adoption grants, capability-building and AI-specific incentives to help small and medium-sized enterprises (SMEs) with faster onboarding. The Enterprise Development Grant and SMEs Go Digital are likely candidates to be enhanced. Businesses also prefer lighter compliance, faster disbursement and clearer procurement pathways. Firms are also calling for labour growth, whether organic or foreign. However, the policy focus will likely remain on productivity training, job redesign and AI skilling.

Transfers may ease today’s burdens, but transformation shapes tomorrow’s opportunities. In a world where growth is acquired rather than inherited, the best welfare strategy is not simply redistribution – it is inclusion into the engines of growth.

Third, our fiscal strategy must be prepared to face an age of volatility. When the world becomes less predictable, fiscal buffers become geopolitical insurance. They allow governments to respond to crises, invest counter-cyclically, and support households without borrowing credibility from future generations.

This is why Budget 2026 cannot be seduced by the new global fashion for expansive industrial populist policy. Singapore will need to be surgical, not maximalist – investing where multipliers are high and spillovers are strategic, especially in manufacturing, innovation, green transitions, and defence-related supply chains.

Our laser-sharp focus could be trained on areas like semiconductor, quantum computing or advanced battery materials where there is a sweet spot of capabilities and potential to scale. Incentives could zoom in on proof-of-concept scale-ups that demonstrate global market potential with clear export pathways, but is tied to the creation of intellectual property in Singapore. For green tech, technologies like electrolyser manufacturing for green hydrogen or carbon capture and utilisation solutions will align with Singapore’s ambitions on reducing our carbon footprint.

A new kind of global competition

The geopolitical mood music of the 2020s is not doom – it is contest. Nations are no longer optimising for growth alone. They are optimising for resilience, security, and bargaining power. This is not inherently negative. Competition, if well-structured, can accelerate innovation and broaden opportunity. It may also force governments to address uncomfortable distributional questions earlier rather than later.

For Singapore, the challenge is to compete without becoming insular, and hedge without becoming timid. That balance will define the next stage of our economy far more than any single quarter of gross domestic product.

It would be easy to interpret the global shift as dark or a zero-sum game. But history offers a more optimistic reading. Periods of restructuring have often been periods of creativity. The post-pandemic world is discovering new supply chains, new technologies, and new alliances. The map is messier, but it throws up fresh opportunities.

Singapore has always built an advantage from disorder. Budget 2026 offers an early chapter in a larger rewrite of Singapore’s economic thesis for a less predictable world.

Forecasts may be wrong but the strategy cannot be. Perhaps the clearest lesson of the past five years is that macro forecasting is an imperfect science, but economic strategy and intent is not. Marksmanship may matter less than direction and agility. And budgets may matter less as predictions of income than as expressions of national intent.

The main difference this time may be a sharper strategic focus on competitive strengths in high-impact areas as identified by an expected update by the Economic Strategy Review committee instead of spreading bets across a wider spectrum of potentially transformative industries. Such an approach recognises that the global world order is in rupture rather than transition in Canadian Prime Minister Mark Carney’s words, and that this economic transformation is likely to be supported by AI adoption and ecosystem growth, as well as the green transition and the growth of sustainability capabilities.

One thing worth remembering about small states: they rarely get to choose the world they inhabit, but they can choose how they adapt. Or, as the writer James Baldwin once put it – in a line that resonates with policymaking as much as literature – “Not everything that is faced can be changed, but nothing can be changed until it is faced.”

This article was first published in The Straits Times on 30 January 2026.