The official 2025 GDP growth forecast was trimmed from 1-3% previously to 0-2% YoY recently. This is a sharp slowdown from the 4.4% seen in 2024.

Selena Ling
Head, Global Markets Research & Strategy,
OCBC

The Singapore economy expanded by 3.8% YoY in 1Q25 but contracted 0.8% QoQ sa (seasonally adjusted), with the latter marking the first QoQ decline since 1Q23.

This 1Q25 advance estimate came in better than our forecast of 3.5% YoY (-1.1% QoQ sa) but was below the Bloomberg consensus forecast of 4.5% YoY (-0.4% QoQ sa). This is a moderation from the 5.0% YoY growth seen in 4Q24, but in line with the 3.2% YoY (0.3% QoQ) seen in the same period last year.

Manufacturing led the pack in 1Q25

Among the sectors, manufacturing led the pack with a 5.0% YoY growth, likely attributable to some frontloading ahead of the US tariffs announcements. This was followed by construction at 4.6% YoY and services at 3.4% YoY.

The manufacturing sector saw output expand YoY across all the clusters except for chemicals and general manufacturing activities, but still contracted 4.9% QoQ sa in 1Q25 (marking the first sequential decline since 2Q24), following flat growth in in 4Q24.

The construction sector was supported by both public and private sector construction activities, but also eased 2.3% QoQ sa in 1Q25, marking the first sequential decline since 1Q24.

The services sector was led by the wholesale & retail trade and transportation & storage (4.2% YoY), infocomms, finance & insurance and professional services (3.0%), as well as the accommodation & food services, real estate, administrative & support services and other services (2.5% YoY). Within the services sector, retail trade was the notable weak link, as the machinery, equipment & supplies segment supported the wholesale trade segment. Sustained strong demand for IT and digital solutions bolstered the infocomms segment, while HQ and business representative offices and management consultancy also lifted the professional services industry. The banking and payments services also contributed to the finance & insurance sector. The real estate sector also saw improved private residential property transactions.

Official 2025 GDP growth forecast trimmed

The official 2025 GDP growth forecast was trimmed from 1-3% previously to 0-2% YoY as expected. This is a sharp slowdown from the 4.4% seen in 2024. Given the state of the world which is fraught with tariff uncertainties, especially the escalation of tit-for-tat between the US and China, and the looming threat of sectoral tariffs, especially on semiconductors and pharmaceuticals, global trade and growth prospects have seen a downshift in recent weeks with no clear sign of bottoming yet.

Couple with the risks of global/supply chain disruptions, dented business and consumer sentiments and an expected pullback in capex and hiring intentions, the risk is for a significantly weaker external demand outlook.

The manufacturing, wholesale trade, transportation & storage industries will face vulnerabilities from a trade slowdown, while the finance & insurance industries will also face heightened volatilty amid risk-off sentiments, tepid credit intermediation and consumer credit card spending. MTI said that given the significant downside risks, they will continue to closely monitor global and domestic developments and make further adjustments to the forecast if necessary. MAS also cited that the aggregate level of output will come in below the potential this year, given Singapore’s high trade dependency and deep integration with global supply chains.

Technical recession possible

A technical recession is possible as the brunt of the initial US tariff announcements has wrecked significant havoc on financial markets in April and a real economic fallout is anticipated in the coming months.

GDP in 2Q25 could contract again sequentially QoQ sa, bringing the Singapore economy into a technical recession, assuming that there is no near-term improvement in the global trade and growth prospects arising from the negotiations on the tariff front that leads to a more sustained lifting of reciprocal tariffs.

For 2H25, GDP growth is likely to sink further due to the high base last year (3Q24: 5.7% YoY and 4Q24: 5.0% YoY), possibly to near stalling speed in YoY terms. This would bring our full-year 2025 growth forecast closer to 1.6% YoY (if the 10% tariff on Singapore remains intact), down from our previous 2.1% forecast prior to the rapid escalation of the US-China tariffs from 54% to the current 145% levels since Liberation Day on 2nd April.

Notably, the manufacturing sector is forecast to shrink, again due to the high base in 2H24, under the weight of tariffs for our major trading partners, although the construction and services sector should still expand YoY this year.

MAS eases policy

The MAS eased its monetary policy settings recently for the second straight meeting by reducing slightly the rate of appreciation, with no change to the band width or the level at which it is centered. This is in line with our house view for a 50 basis points flattening of the Singapore Dollar Nominal Effective Exchange Rate (S$NEER) slope.

MAS also cut the 2025 headline and core inflation forecasts to 0.5-1.5% YoY, from 1.5-2.5% and 1-2% previously. MAS cited the significant easing in January-February inflation rates, the modest imported inflation outlook amid slowing global demand and lower energy & commodity prices, as well as the cooling domestic labour market with implications for nominal wage growth amid improving labour productivity.

MAS also noted that the re-basing of CPI in January only accounted for a small part of the inflation step-down. MAS will closely monitor global and domestic developments and remain vigilant to inflation and growth risks. In our view, there is room for a further monetary policy easing if economic conditions deteriorate further. The rhetoric is clearly dovish with reference to the output gap turning negative and the downside inflation risks.

The reciprocal tariffs are likely deflationary for the Singapore economy as China diverts exports to the rest of the world, including ASEAN, and the dampening effects on business and consumer demand are likely to play out in the coming months. We shade down our 2025 headline and core inflation forecasts to 1.2% YoY, from 1.5% YoY previously, given the escalating US-China trade war, the widening financial market volatility and the economic implications on trade and growth prospects of our major trading partners (especially those of China and ASEAN).

That said, monetary policy will only complement the fiscal policy accommodation that is likely to follow. A taskforce chaired by Deputy Prime Minister Gan Kim Yong has already been set up to help businesses and workers address the immediate uncertainties, strengthen their resilience, and better adapt to the new economic environment. Notably, the policy stance is one of standing ready to do more, if and when necessary. Singapore is well-positioned to do so as it has the financial resources to do so. More fiscal support, possibly in the form of an off-budget package, could be forthcoming later this year if economic conditions continue to soften from here. In the near-term, the broad US Dollar and US Treasury bond market direction may exert greater influence on Singapore Dollar and short-term Singapore Dollar interest rates.