Singapore’s 5.4% Growth Hides a Factory Pullback

Singapore’s economy grew 5.4% in the third quarter from a year earlier, according to advance estimates, even as factories shrank from the prior quarter.

The Monetary Authority of Singapore left its dollar policy band unchanged on Oct. 14 and said growth will moderate as the AI cycle eases from its exceptional pace.

A 5.4% Quarter With Factories in Reverse

The Ministry of Energy, Trade and Industry put year-on-year growth at 5.4% in the July-to-September quarter, down from 6.2% in the second quarter. On a seasonally adjusted basis, output rose 1.1% from the prior quarter, after 1.5% in the second. Private-sector economists had penciled in a 5.1% median for the year-on-year rate, so the print still cleared the bar. It just did so with less of the factory thrust that carried the first half.

METI’s advance estimates for third-quarter GDP are built largely from July and August and will be revised. Manufacturing, the engine behind the AI story, grew 7.5% from a year earlier after 12.9% in the second quarter. From the prior quarter it contracted 0.9%, a pullback from a 6.3% expansion. That is the number the year-on-year rate does not advertise.

Goods-producing industries as a whole slowed to 7.3% year on year from 10.9%, and were flat quarter on quarter. The year-on-year path was already cooling before this print: 6.4% in the first quarter, 6.2% in the second, 5.4% in the third, after 5.0% for 2025 as a whole.

Q3 GROWTH BY SECTOR

METI said electronics, precision engineering, transport engineering and general manufacturing expanded, and that those gains outweighed declines in chemicals and biomedical manufacturing. Construction was the fastest major sector on a year-on-year basis. Services held at 5.2% for a second quarter, which is a floor under the print now that factories have stepped back.

MAS Skips a Third Tightening

MAS kept the slope, width and center of the Singapore dollar nominal effective exchange rate band where they were. It was the first pause after consecutive tightenings in April and July. Seventeen of 20 economists in a private-sector poll had forecast a steeper slope. The bank still wants the dollar to rise against a basket of trading-partner currencies; it just declined to speed that rise again.

In April, MAS lifted the appreciation rate of the S$NEER band slightly. It did so again, very slightly in July, with no change then to the band’s width or its center. Since July, MAS said, the S$NEER has strengthened modestly inside the upper half of that appreciating band. The Oct. 14 decision leaves those three levers in place.

The Singapore economy should continue to expand at a firm pace in the immediate quarters ahead, and moderate thereafter as the AI cycle eases from its exceptional pace and global financial conditions tighten.

Monetary Authority of Singapore, Oct. 14 policy statement

MAS said it would maintain the rate of appreciation so the S$NEER can keep strengthening and lean against a near-term rise in imported inflation. Jonathan Koh, an economist at Standard Chartered who had expected another tightening, said the pause reflects settings that are already tight enough, services inflation that came in softer than expected, and a view that the positive output gap will narrow as AI-related growth moderates.

WHERE EXPERTS DISAGREE

• The poll: Seventeen of 20 economists surveyed had forecast a steeper S$NEER slope at this meeting, and only three had expected no change.
• The hold: MAS left all three band settings unchanged and cut the top of its 2026 core inflation range, arguing that AI-related growth will moderate and that services inflation was softer than projected.
• The 2027 risk: ANZ said MAS could tighten again in 2027 if inflation risks show up, a live option the bank itself left open by saying it is well positioned to respond.

That 2027 flag fits the market’s own read of the hold: the surprise is the skipped move, not the growth rate, and dollar positioning still looks light enough that a later hawkish turn would show up quickly in USD/SGD. MAS did not close that door. It said risks to inflation remain tilted to the upside, including a broader spillover from the AI boom into unit labour costs.

Behind the Chip Surge, Two Clusters Are Shrinking

The year-on-year manufacturing rate is still an electronics story. Enterprise Singapore said electronics NODX surged 131.8% in August, after 112.0% in July, on AI-related demand. Non-oil domestic exports as a whole rose 46.2% in August, after 24.1% in July, and were up 22.4% in the first eight months of 2026. August also had help from a low base: NODX in August 2025 was S$13.3 billion, the lowest month of that year.

AUGUST’S AI EXPORT LINES

• Integrated circuits: Up 90.9% year on year, adding S$1.9 billion, the largest dollar contribution in electronics.
• Disk media products: Up 290.2%, adding S$1.4 billion, the fastest electronics line.
• PCs: Up 237.9%, adding S$1.3 billion, the third leg of the same AI hardware run.
• Non-electronics: Up 12.0% after a 2.4% drop in July, led by specialised machinery, non-monetary gold and medical apparatus.

Wholesale trade moved with those shipments. METI said the machinery, equipment and supplies segment led wholesale, in tandem with electronics exports, and that water and air transport led the storage and transport group. The wholesale, retail, and transportation and storage group grew 8.0% year on year, faster than 6.9% in the second quarter, and 2.2% quarter on quarter after a flat second quarter. Retail trade was the exception inside that group.

Chemicals and biomedical manufacturing did not share the ride. METI recorded output declines in both clusters in the third quarter, which is why a 7.5% manufacturing rate can sit beside a quarterly contraction. The chip and equipment complex is still filling export books. Two other factory clusters are already smaller than a year ago, and the whole manufacturing sector is smaller than it was in the second quarter.

How Singapore Steers Inflation Without a Policy Rate

MAS does not set a policy interest rate. It steers the S$NEER, a trade-weighted basket, and lets a stronger dollar cheapen imports. That is why the October choice was about the slope of a band, not a hike. Core inflation, which strips out accommodation and private transport, rose to 2.1% year on year in July and August, from 1.5% in the second quarter.

Higher import costs passed through to a wider set of goods and services, MAS said, with electricity and gas tariffs stepping up and inflation in fuel-intensive transport staying high. Food inflation rose to 2.2% from 1.9% over the same span. Services inflation came in lower than projected, held down by larger government subsidies for healthcare and by sharper price competition in telecommunications.

Energy commodity prices have risen again since September and are projected to stay high in the near term, MAS said, while global and regional food prices are also expected to pick up. A faster recovery in energy shipments through Hormuz is one of the few forces MAS listed that could pull energy prices down by more than it has built in. Until that happens, imported costs will keep core and all-items inflation a little elevated in the months ahead.

INFLATION AS MAS NOW SEES IT

• Core, July-August: 2.1% year on year, up from 1.5% in the second quarter, after import costs moved through goods, fuel-heavy transport and food.
• 2026 core forecast: 1.5% to 2.0%, narrowed from the 1.5% to 2.5% range MAS had been using, with CPI-All Items around 2.0%.
• 2027: Both core and all-items inflation projected at 1.5% to 2.5%, with a clearer easing from mid-2027 if import costs ebb.
• The residual risk: A sharp, lasting jump in energy or food prices, or a broader AI spillover into wages, could keep prices higher than that path.

MAS said unit labour cost increases in services should stay contained because of productivity gains, and that extra subsidies for healthcare and education will keep services inflation low through 2027. Maybank economist Chua Hak Bin has argued that higher interest rates and a K-shaped labour market will also help cap wage costs, which is one reason the hold can work if the import shock does not worsen. The bank still called the inflation-risk balance tilted up, not down.

Construction Picks Up as Factories Pause

Construction expanded 8.8% year on year in the third quarter, faster than 6.1% in the second, as both public and private output rose. Quarter on quarter it grew 3.4%, reversing a 2.7% contraction. MAS said construction of major infrastructure projects should keep running even after AI-related activity cools, which is why this sector is now doing work the factory data is no longer doing.

The rest of services was less even. Information and communications, finance and insurance, and professional services grew 4.3% year on year, down from 5.1%, and only 0.4% quarter on quarter after 2.8%. IT and information services led the info-communications gain. Architectural and engineering work, plus technical testing and analysis, led professional services. Fund management and banking led finance. Those are still expanding. They are no longer expanding at the second-quarter clip.

Accommodation, food, real estate, administrative support and other services grew 2.1% year on year, after 2.4%. Food and beverage services were the exception and declined. Accommodation grew on more gross lettings in higher-value hotel segments. Consumer-facing demand, MAS said, showed some weakness. The 5.4% headline is a tech-and-build mix with a softer high street, not a broad boom that landed in every shop.

Late 2027 on the MAS Calendar

MAS’s growth call is two-step. Strong orders for AI products and added production capacity should keep technology-related sectors firm in the near term. The pace of that activity is then projected to moderate in the latter half of 2027, even as infrastructure work and financial services continue. The economy’s positive output gap this year is forecast to narrow through next year. METI will publish the government’s 2026 and 2027 GDP forecasts in November.

That is a central bank dating the end of an exceptional AI run while the year-on-year print is still 5.4%. Global AI-driven growth, MAS said, should ease in the latter half of 2027 from its current exceptional pace, while higher interest rates in advanced economies weigh on final demand. The same rollover is already visible in data-center debt tied to that buildout. Singapore’s factory data just put an early local stamp on it: electronics can still surge from a year earlier while the manufacturing sector shrinks from the prior quarter.

THE 2026 DOLLAR-BAND MOVES

1. April 14, 2026: MAS increases the rate of appreciation of the S$NEER policy band slightly, with no change to width or center, after energy costs from the Middle East conflict feed into import prices.
2. July 27, 2026: MAS increases the appreciation rate very slightly again, keeps the 2026 core and all-items inflation forecasts at 1.5% to 2.5%, and says core inflation will step up from July and stay elevated into early 2027.
3. October 14, 2026: MAS holds slope, width and center, narrows 2026 core inflation to 1.5% to 2.0%, and says the AI cycle will ease from its exceptional pace, with a clearer inflation come-down from mid-2027.

The hold only works on the path MAS wrote down: AI orders stay strong for a few more quarters, then cool; energy and food costs stop climbing; domestic wages do not take over. If energy prices stay high, or if the AI boom broadens into labour costs, the bank has already said it can move again. If the factory contraction is the start of that cooler AI pace arriving early, the skipped tightening will look well timed.

METI will publish the full third-quarter breakdown, including jobs, prices and the sources of growth, in the Economic Survey of Singapore in November. The advance print used July and August. The next official growth forecasts for 2026 and 2027 are due in the same round.