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After a turbulent year defined by geopolitical tensions and tariffs, Singapore’s economy came through relatively unscathed. Yet the city-state — widely seen as a bellwether for global trade — has warned that the worst is yet to come.

“Despite mounting stresses, the global economy proved more resilient than anticipated and the system continued to function,” Singapore’s Prime Minister Lawrence Wong said during his budget speech this week. “This year, however, we may not be so fortunate.”

As one of the world’s most outwardly facing economies, Singapore is especially susceptible to disruption to global trade. The finance, commerce and shipping hub acts as a vital conduit, connecting China with the west, and has been one of the biggest beneficiaries of the era of globalisation.

Singapore’s economy grew at a better than expected 5 per cent last year, as the trade-dependent nation was bolstered by companies frontloading in advance of US tariffs being implemented and the global surge in AI investment. But, while Singapore upgraded its forecast for 2026, growth is expected to slow.

Wong said that the full effects of US President Donald Trump’s package of “reciprocal” tariffs — unveiled in April last year — were likely to hit in the coming months as countries around the world became more protectionist and trade slowed.

He pointed to rising geopolitical tensions this year, following the US capture of former Venezuelan President Nicolás Maduro in January and increasing hostility between Iran and the US.

“As pressures build and the margin for error narrows, the resilience of the global system will be tested far more severely,” he said. “Growth will be harder in this changed world.”

Wong also warned of “growing signs of fragility in the global economy”, especially tied to rising levels of public debt and inflated asset valuations. 

While the city-state was handed one of the lowest reciprocal tariff rates from the US of 10 per cent, most of its neighbours were hit with levies of at least 19 per cent.

The trade ministry this week upgraded Singapore’s 2026 GDP growth forecast to between 2 and 4 per cent, up from a range of 1 to 3 per cent, on the back of a better than expected final quarter of 2025. GDP rose 6.9 per cent in the final three months of last year compared with the same period a year before, up from advance estimates of 5.7 per cent. 

The uplift was driven by a surge of global AI investment last year, which provided a boon for Singapore’s high-tech manufacturers. The biggest US tech companies spent more than $400bn on AI in 2025, and they have plans to raise that to $660bn this year. 

“Global artificial intelligence tailwinds that boosted Singapore’s manufacturing and trade-related services sectors in 2025 appear to be sustaining into early 2026, with the maturing tech upcycle yet to show signs of waning,” said Chua Han Teng, senior economist at DBS Group.

He added that there had been a strong demand for electronics produced in the city-state, with server products and memory chips driving sales. 

Despite lacking a global chipmaking champion of its own, Singapore hosts plants for several of the world’s biggest manufacturers.

Several more multibillion-dollar production facilities are due to open this year, including an advanced packaging plant from Micron, as well as fabrication facilities from Taiwanese chipmakers UMC and VSMC.

However, Chua noted that, while Singapore’s domestic economy appeared to have avoided being hit too heavily by the disruption to global trade, it was still vulnerable. “Singapore’s non-electronics exports are likely to face downside pressures from these lingering external tariff headwinds,” he said.

Singapore’s close business and investment ties to China and the US have been put under strain by the rising tensions between the two superpowers. Last year, China overtook the US as the largest source of investment.

Chinese companies accounted for just over half of Singapore’s total business expenditure in 2025, up from 15 per cent a year earlier, according to figures released by the national economic development authority on Monday.

While Trump’s transactional approach to foreign policy has been poorly received in much of Asia, China has redoubled its efforts to tighten its ties to its neighbours.

“For nearly eight decades, the world benefited from an international order that supported stability and economic co-operation. The system rested in large part on the leadership of the United States,” Wong said on Thursday.

“That era has now come to an end.”