Singapore experiences 2.9% growth in the third quarter despite trade tensions

An Expected Slowdown in a Deteriorating Business Environment

On October 14, Singapore's Ministry of Trade and Industry released preliminary estimates indicating a significant slowdown in economic activity in the third quarter of 2025. The year-on-year growth of 2.9% marks the slowest pace of expansion observed in the last two years, although it remains above the consensus economic forecasts. On a seasonally adjusted quarterly basis, the gross domestic product increased by 1.3%, compared to 1.5% in the second quarter, indicating a gradual yet managed deceleration in activity.

This development occurs in a global context marked by the intensification of trade restrictions imposed by the US administration, which have specifically targeted the pharmaceutical and electronics sectors with tariffs reaching up to 100% on certain patented products. The manufacturing sector, traditionally a mainstay of Singapore's economy, has particularly felt this pressure, experiencing zero growth year-on-year, a stark contrast to the 5% expansion recorded three months earlier.

The biomedical manufacturing and general manufacturing clusters faced reductions in production that offset gains made in other industrial segments. Nonetheless, on a quarterly basis, the manufacturing sector rebounded with a 6.1% increase, reversing the 0.7% contraction observed in the previous quarter. This volatility reflects the anticipation strategies of companies in response to tariff barriers, with pre-shipment of exports temporarily supporting activity before tapering off.

Differentiated Resilience Among Economic Sectors

Sector analysis reveals divergent paths within Singapore's economy. The construction sector maintained positive momentum with an annual growth of 3.1%, although it slowed compared to the 6.2% growth in the previous quarter. This expansion was driven by simultaneous advancement in both public and private projects, indicating a still-robust domestic demand.

However, on a quarterly basis, the sector recorded a contraction of 1.2%, reversing the 6.5% growth of the second quarter, suggesting normalization after an exceptional acceleration phase. Service industries showed mixed performances, with wholesale and retail trade, as well as transportation and warehousing sectors, collectively growing by 2.5% year-on-year, down from 4.9% in the previous quarter.

This moderation is partly due to the easing of pre-loading activities that had artificially inflated volumes in the first half of the year. The information and communications, finance and insurance, and professional services sectors reported a year-on-year growth of 4.4%, extending the 4.3% momentum from the previous quarter and demonstrating the strength of high-value-added activities. Accommodation and food services grew by 4.1% overall, supported by an increase in international visitor arrivals, although the food services sector suffered from heightened overseas travel by Singaporean residents.

Cautious Outlook Amid Ongoing Trade Uncertainties

The Monetary Authority of Singapore reported that the economy grew by 3.9% over the first nine months of 2025, a pace exceeding the trend expected to normalize in the coming quarters. The central bank kept its monetary policy unchanged during its meeting on October 14, maintaining the rate of appreciation of the Singapore dollar against the currency basket of its main trading partners.

This decision reflects a balance between stronger-than-expected economic growth and controlled inflation, with core inflation slowing to 0.3% in August, its lowest level since February 2021. In August, the Ministry of Trade had raised its full-year 2025 growth forecast to a range of 1.5% to 2.5% from an initial estimate of 0% to 2%, reflecting the better-than-expected performance in the first half of the year.

However, outlooks remain clouded by ongoing global trade uncertainty, with risks skewed to the downside according to authorities. Private economists have adjusted their forecasts, with some now expecting annual growth close to 3%, or even 3.5%, although the fourth quarter is anticipated to see a marked slowdown, with potential expansion below 1% year-on-year. US sectoral tariffs, particularly on pharmaceuticals, which account for about 4 billion Singapore dollars of exports to the United States, present a significant threat to export-oriented sectors, further compounded by the potential extension of similar measures to semiconductors, where Singapore holds a strategic position in the global supply chain.