Economy could slow to 1% if Middle East tensions persist into H2: RHB

The first quarter’s 4.6% growth does not yet reflect the late-February conflict.

Singapore’s economy could slow to as low as 1.0%–1.5% if Middle East tensions persist into the second half of 2026, despite a 4.6% GDP growth in the first quarter, according to an RHB report.

“We maintain Singapore’s GDP growth forecast at 3.0% for 2026, whilst acknowledging downside risks toward 2.5%,” the bank said, attributing the risks to higher oil prices and weaker global trade.

It added that a more severe scenario—such as sustained oil prices above $152.64 (US$120) per barrel or continued disruption to shipping through the Strait of Hormuz—could further drag growth to 1.0%–1.5%.

The economy grew 4.6% year-on-year (YoY) in the first quarter, slowing from 5.7% in the previous quarter.

RHB said the moderation was due to weaker performance in trade-related sectors following strong growth in 2025, along with early signs of strain from the Middle East conflict, which began in late February.

Manufacturing growth slowed sharply, whilst services eased slightly. Construction was the only sector to accelerate, supported by stronger public and private sector activity.

Meanwhile, a 10% increase in oil prices could cut industrial output by around 0.6 percentage points and raise inflation by 1 percentage point.

“Given uncertainties in trade tensions, we expect rising headwinds for Singapore’s externally oriented sectors from Q2 onwards,” the bank added.

Separately, SGX Group said that the economy remained “resilient” on a YoY basis, but noted that growth has slowed compared to the previous quarter as imported cost pressures rise.

“This is consistent with businesses placing greater emphasis on margin protection, inventory management, and operational resilience amidst a higher‑risk external environment,” it said.

The group added that the current environment is increasingly shaped by external cost pressures and geopolitical risks rather than weak domestic demand.

Moreover, attention has shifted to areas where activity remains more closely tied to tangible output, including manufacturing, electronics, and selected industrial segments.

$1 = US$0.79