UOB’s Jester Koh raises Singapore’s 2026 GDP growth forecast to 4.8% from 4.0% after strong 1H26 performance, with manufacturing and electronics leading gains on AI-related demand. The note highlights risks from Middle East tensions and potential oil price spikes that could derail the electronics cycle and weigh on growth, but baseline expectations remain for solid expansion.

Forecast upgraded on strong 1H26

"We raise our 2026 GDP growth forecast further to 4.8% (from 4.0% prev, 2027F: 3.0%), following the 1H26 GDP growth outperformance (6.0%). Recent indicators also suggest that AI-related tailwinds could remain supportive through 3Q26."

"This points to continued strength in AI-related demand. In addition, the increase in the electronics orders-to-inventories ratio suggests that firms are drawing down existing inventories to meet robust demand."

"This should support electronics IP growth in the months ahead. We see left-tail risks to our baseline forecast."

"A meaningful re-escalation in the Middle East conflict, leading to a renewed surge in energy and oil prices, could prompt central banks globally to tighten monetary policy further. If accompanied by a selloff in AI-related equities amid stretched valuations, firms may delay or cancel capex plans."

"This could, in turn, lead to an unwinding of the electronics cycle and weigh materially on growth."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)