AI demand shields growth from Middle East oil shock: MAS

Electronics output rose 38% as exports surged 79% in April–May.

The Middle East conflict has hit Singapore’s inflation more than growth, with strong artificial intelligence (AI)-related demand expected to offset any near-term drag on output.

The global AI supercycle has provided some support to the domestic outlook, particularly across the technology-related segments, according to the Monetary Authority of Singapore (MAS).

Technology-related industries, which account for about 22% of GDP, grew 21% year-on-year in the second quarter.

Meanwhile, electronics production rose 38% in April and May on demand for memory chips, AI servers and related infrastructure. Real electronics domestic exports increased 79%.

“For the full year, these segments are projected to account for the bulk of the economy’s expansion, up from around 50% in 2025,” MAS said in its July 2026 Macroeconomic Review.

The economy expanded 5.7% year-on-year (YoY) in the second quarter (Q2), easing from 6.3% in the previous quarter.

This came even as oil-related industries, which account for 6.6% of GDP, contracted an estimated 11% YoY in Q2, whilst chemicals manufacturing output fell 14% in April and May.

Real domestic exports of oil-related products fell 21% in the second quarter, although re-exports rose as regional markets sought alternative supplies.

“The primary impact of Middle East developments on Singapore has thus far manifested more in inflation rather than growth,” MAS said.

MAS core inflation rose to 1.5% in Q2 from 1.2% in January and February, whilst all-items inflation increased to 1.8% from 1.3%. Both measures are forecast to average 1.5% to 2.5% in 2026.

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