Singapore Economics: Reduced Stagflationary Risks Complicate July Slope-Steepening Call

Research evidence excerpt

Singapore Economics: Reduced Stagflationary Risks Complicate July Slope-Steepening Call

Singapore Economic Outlook

Following the large upward revision in 1Q26 growth to 6% YoY (AE: 4.6%, 4Q: 5.7%) and incoming Apr-May data, we raised our

2026E GDP forecast further to 4% (from 3.3%, 2027F: 2.2%). We raise our 2Q26E GDP forecast to +5.1% YoY, +0.8% QoQ SA

(from +4% YoY, -0.3% QoQ SA), and assume a slowdown to below-trend sequential growth in 2H26E, with upside risks from

Straits of Hormuz (SoH) reopening tailwinds.

Strength in tech/trade-related areas and sentiment-sensitive sectors contributed disproportionately to growth in 1H26E, and

we expect semiconductor manufacturing momentum to moderate in 2H26E, but still strong overall.

SoH reopening reduces uncertainty and downside growth risks, and may ease drags so far seen through (a) feedstock shortages

hitting refinery/petrochemicals production, (b) erosion of producer margins and output from higher costs, (c) disruptions in sea

routes and oil imports hitting transport/storage sectors, and to a lesser extent (d) softer visitor arrivals.

While the higher “oil tax” on consumers has been limited, discretionary consumption faces headwinds from soft tourist arrivals

and greater caution, amidst a discernible softening of the job market in 1Q26, as unemployment and retrenchments ticked

higher amidst weaker hiring and more moderate wage growth.

While lower oil prices have reduced the upside risks to inflation, core inflation is still likely to climb sharply to >2% in 2H26E on

lagged adjustment of electricity tariffs, averaging 2% in 2026E. More broadly, pass-through of imports price surge should keep

core goods inflation elevated, offsetting subdued services inflation from a cooler job market.