Singapore growth to stay firm, but AI boost to moderate in 2027: MAS

[SINGAPORE] The Republic’s economy is expected to continue expanding in the quarters ahead, though the pace of artificial intelligence-related activity is projected to moderate in the latter half of 2027.

In the near term, strong orders for AI products and an increase in production capacity “should sustain firm growth in the technology-related sectors”, the Monetary Authority of Singapore (MAS) said in its macroeconomic review on Wednesday (Oct 14).

The review was released after advance estimates from the Ministry of Energy, Trade and Industry showed that Singapore’s economy grew 5.4 per cent year on year in the third quarter. 

MAS also kept its Singapore dollar nominal effective exchange rate policy settings unchanged on Wednesday, against private-sector economists’ expectations, after two consecutive tightenings earlier this year.

The central bank said in its review that core inflation is expected to “ease more discernibly” from the middle of 2027, but risks remain tilted to the upside. Inflation could rise more than anticipated if renewed disruptions in the Middle East trigger another surge in energy prices, or adverse weather leads to larger increases in food prices.

AI’s impact on growth

MAS said Singapore’s economy is “expanding at an above-trend pace”, with technology-related sectors supporting firm gross domestic product growth in Q3.

Strong order backlogs and capacity expansions in AI-related production should sustain growth in the near term, it said. The global AI investment cycle is expected to remain a key growth support, even as AI-driven growth moderates from its exceptional pace.

In Singapore, AI-related activity is projected to moderate in the latter half of 2027, while construction and financial services activity continue apace.

Computing and data-centre demand is expected to rise through 2027, lifting capital expenditure expectations for US hyperscalers. Semiconductor production is also expected to remain elevated in the coming quarters and could rise further as new capacity comes on stream.

The risks of an AI cycle downturn “appear less immediate”, MAS said. “A materially weaker growth outcome would likely require a financial shock that emanates from a sharp reassessment of expected returns across the AI ecosystem,” it added.

One plausible scenario is an “AI infrastructure credit shock”, in which weaker-than-expected AI monetisation leads hyperscalers to cut capital expenditure and prompts a repricing of debt-financed AI investments. 

This could tighten financial conditions, delay projects across the AI supply chain and trigger a self-reinforcing downturn in investment and global growth.

Inflation remains elevated in the near term

MAS expects Singapore’s core inflation to “remain slightly elevated in the immediate quarters ahead”, before easing more discernibly from mid-2027.

It forecasts core and headline inflation to average 1.5 to 2.5 per cent in 2027. For 2026, it expects core inflation to average 1.5 to 2 per cent and headline inflation around 2 per cent.

Core inflation rose to 2.1 per cent year on year in July and August, from 1.5 per cent in the second quarter. 

MAS attributed the increase to earlier rises in energy and other imported costs filtering through to electricity and gas, food, and fuel-intensive services such as airfares and point-to-point transport. 

Enhanced healthcare subsidies and larger discounts on telecommunications services partly offset the increases by lowering prices in those categories.

“Taken together, price increases in the economy broadened but at a relatively gradual pace,” MAS said.

Imported inflation is expected to stay elevated in the near term. 

Brent crude and refined fuel prices have risen anew amid renewed conflict in the Middle East and are expected to remain high in the coming months, before easing over 2027 as oil and gas flows normalise. 

El Nino-related weather disruptions could push up food prices, though healthy inventories in major producing countries should limit the increase. 

MAS expects the impact on Singapore’s food prices to fade in the latter part of 2027 as the weather-related shocks dissipate.

Globally, the economy has remained resilient despite the energy shock, supported by the technology upcycle. Alternative supplies, inventory drawdowns, softer oil demand and fiscal subsidies have helped cushion the impact of disrupted energy flows.

Lower-than-expected inflation readings prompted MAS to lower its global inflation forecasts to 2.5 per cent for 2026 and 2 per cent for 2027, from 2.7 and 2.2 per cent, respectively, in its July review. 

But global headline inflation is expected to edge up in the coming months as higher energy costs continue to reach consumers. 

MAS estimates that up to a third of the energy shock has yet to feed through to consumer prices; inflation should then ease gradually in 2027.

For Singapore, MAS said tighter global financial conditions could weigh on growth and inflation, while a faster resumption of crude and distillate shipments from the Middle East could cause inflation to fall more quickly than expected.

Labour market

MAS said Singapore’s labour market conditions remain stable: Vacancies still outnumber unemployed persons and resident unemployment remains low, although retrenchments have risen.

Wage growth is expected to moderate to around historical norms, while unit labour cost growth should remain subdued amid firm productivity gains. 

Construction and domestic-oriented services are expected to support hiring, though resident employment growth will slow as labour supply expands more slowly with an ageing population.