Inflation is projected to ease progressively in Singapore by 2027, mirroring global energy price trends, according to the Monetary Authority of Singapore (MAS). However, the central bank cautions that a prolonged Middle East conflict could disrupt energy supplies, leading to sustained higher prices and hindering economic growth.
MAS stated that even with renewed Middle East energy supplies, global oil prices are expected to remain elevated. While domestic inflation is anticipated to peak and then decline, upside risks to this outlook persist. Disruptions to global energy supplies or export controls would increase import costs for Singapore, potentially exacerbating inflation and slowing growth.
This scenario could erode household real incomes as higher import costs affect domestic goods and services, dampening overall demand. Singapore's GDP growth for 2026 is forecast to slow from the previous year, with a broad-based sector impact.
Near-term support for domestic activity, particularly in technology segments, is expected from global AI demand due to committed investments. However, a more uncertain macroeconomic climate and tighter financial conditions may temper demand later in the year. Higher energy prices could increase production costs, reduce real incomes, and consequently impact consumption and investment.
The MAS also noted that damage to energy infrastructure from the conflict could create lasting constraints on production inputs, with sustained effects on the Singaporean economy. Prolonged energy crises could compound downside risks to growth. The impact of the Middle East conflict is expected to weigh on Singapore's economic activity in the coming quarters, though the precise extent remains uncertain.
Industries heavily reliant on energy, including petroleum, gas, electricity, petrochemicals, chemicals, transportation, and water services, face the most significant impact. These sectors, representing about 10% of GDP, see energy inputs exceeding 10% of their total requirements.
The chemicals industry is already affected by input disruptions, with potential spillovers to other areas. The wholesale trade sector, a substantial part of GDP, is also indirectly impacted, particularly through its reliance on the energy-intensive transport and storage sector. Domestic-oriented businesses, such as land transport operators, are directly facing mounting cost pressures.
In the technology sector, strong AI demand could be disrupted by supply shocks, rising costs, and tighter financial conditions. Potential semiconductor supply shortages, exacerbated by Middle East helium production issues, could increase server and networking equipment prices. Elevated energy costs will also raise operating expenses for data centers. Continued uncertainty and high inflation could also dampen investment sentiment in the AI ecosystem.
MAS views the current energy shock as potentially more systemic and sustained than previous crises. Extended energy supply interruptions could trigger significant asset price corrections. The resulting demand destruction from a combined energy and financial shock would severely impact global growth, potentially leading to disinflationary pressures by 2027. Countries with weaker energy, fiscal, and reserve buffers are most vulnerable, with potential financial market contagion if risk-off sentiment intensifies. In such a scenario, global growth could contract sharply while inflation remains high in 2026.