S'pore economy grew 2.9% in Q3, down from 4.5% on Q2

Inflation in Singapore will likely decline in the rest of 2025, but pick up gradually over 2026, the Monetary Authority of Singapore (MAS) projected.

The inflation rate for all goods and services is forecast at an average of 0.5 to 1 per cent in 2025, before it is expected to rise modestly to 0.5 to 1.5 per cent in 2026.

However, inflation is expected to ease for private transport in 2026, MAS said in its quarterly macroeconomic review released on Oct. 14.

The recent surge in Certificate of Entitlement (COE) premiums is likely to continue contributing to high prices in the remainder of 2025, but the demand for cars could moderate once the lower rebates and higher surcharges associated with the revised Vehicle Emissions Scheme take effect in January 2026.

In addition to a more moderate demand for cars, MAS projects further declines in petrol prices and higher COE supply.

Combined together, these factors should dampen private transport inflation, MAS said.

As for housing, slowing market rent increases in recent years is expected to slow the pass-through into higher prices, so accommodation inflation will also likely ease in 2026.

Inflation currently low

Inflation for all goods and services is currently low, after dropping to 0.6 per cent between July and August 2025, from 0.8 per cent in the previous quarter.

It was a result of easing business cost pressures, softer consumer demand for sectors such as restaurants, and stronger competitive pressures in sectors such as telecommunications, MAS said.

In the F&B industry, weak sales for restaurants have driven restaurant food inflation to historically low levels.

Hawker food, on the other hand, saw firmer demand, gradually driving inflation for hawker food up towards its pre-Covid trend pace.

Additionally, the impact of enhanced government subsidies in essentials such as healthcare and groceries possibly also dampened core inflation momentum.

Why inflation will rise

As such dampening effects taper, however, there will be a gradual rise in inflation over the coming quarters, MAS forecasted.

Domestic cost pressures are also expected to contribute to this gradual upturn in inflation.

The growth of unit labour cost in the services sector is projected to rise in 2026 as productivity growth normalises.

At the same time, private consumption is expected to grow steadily, due to projected healthy aggregate household balance sheets and broadly resilient employment conditions.

MAS cautioned that the inflation outlook is subject to uncertainties.

Supply shocks, including those stemming from geopolitical developments, could cause some imported and shipping costs to increase abruptly.

On the other end, if global demand weakens more sharply than expected, it could result in lower core inflation for a longer period of time.

Another significant decline in global oil prices could also temporarily slow the pace of price increases.

Economic growth better than expected

As for the growth of the Singapore economy, the country's growth domestic product (GDP) fell in the third quarter of 2025 to 2.9 per cent on a year-on-year basis, compared with 4.5 per cent in the previous quarter.

Nonetheless, according to MAS, Singapore's GDP outturn has been stronger than expected, rising by 3.9 per cent year-on-year between the first and third quarter.

This result has mirrored that of the global economy.

Global economic activity picked up in the second quarter and has remained resilient in recent months, MAS said.

It was due to trade front-loading (accelerating shipment to avoid the impending tariffs from the United States), an increase in AI-related investments, and generally accommodative financial conditions.

Singapore's production and exports have benefited from the strong global demand for AI-related infrastructure, resulting in a 60 per cent growth in the infocomms and consumer electronics segment between July and August 2025 from the second quarter.

But growth is expected to slow

Since August, export growth in Asia has been slowing following the implementation and some escalation of tariffs.

As the full impact of the higher tariffs hits in the months ahead, global growth is expected to moderate in 2026, according to MAS.

In Singapore, growth is similarly expected to slow moderately going forward.

Retail and F&B sectors are likely to see tepid, uneven growth in 2026, due to limited support from resident household spending, MAS predicted.

SG60 vouchers has given these sectors a boost, but this effect will taper off as the vouchers approach their expiration dates.

For manufacturing firms in Singapore, however, MAS expects that they should have adequate financial buffers to absorb export price declines without significantly cutting production at least for the rest of 2025, barring a sudden increase in tariffs or a sharp decline in demand.

Singapore's trade, electronics, and professional services sectors will likely also find support from the continued growth of global demand and investment in AI infrastructure.

No change to monetary policy

MAS also announced it will maintain the prevailing rate of appreciation of the Singapore dollar nominal effective exchange rate (S$NEER).

MAS manages monetary policy through S$NEER, by adjusting the exchange rate of its dollar, rather than changing domestic interest rates as central banks in most other countries do.

In the October policy review, there was no change to the width of the policy band and the level at which it is centred.

After easing monetary policy twice this year in January and April, Singapore's economic growth has outperformed expectations, MAS said.

MAS aims to secure low and stable inflation over the medium term by managing the level and path of S$NEER within a policy band.

"MAS will continue to monitor global and domestic developments closely and is in an appropriate position to respond effectively to risks to medium-term price stability," it said.

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