Singapore: Limited growth hit from conflict – UOB

UOB Global Economics & Markets Research, through Associate Economist Jester Koh, judges that Singapore’s GDP exposure to the Middle East conflict is modest under a short-lived shock scenario. Exports to key regional economies are about 2% of total exports, and UOB keeps its 2026 GDP growth forecast at 3.6%, while flagging potential secondary demand effects via weaker global consumption and investment.

Growth impact seen as contained for now

"We assess the direct impact on Singapore’s GDP growth from the latest escalation in the Middle East conflict to be limited at this juncture, assuming the conflict stays heightened only for a short period (within four weeks) and the associated oil price shock is transient (remaining below US$100/bbl and normalizing gradually thereafter)."

"Secondary effects on growth, though difficult to quantify, could emerge through the associated drag on consumption and investment activity in Singapore’s key trading partners."

"External demand may be dampened by weaker sentiment and supply‑chain disruptions, which in turn would weigh on Singapore’s exports. This poses a drag on Singapore’s growth, compounded by the economy’s high degree of openness, with a significant share of domestic value‑added (DVA) supported by foreign demand."

"In addition, spillover effects from higher utility, transport and input costs on both goods and services inflation could be meaningful. Using data from 2005–2025, our regression results suggest that a US$10/bbl increase in Brent crude oil prices from baseline could raise core inflation by around 30–40bps."

"On balance, this implies, ceteris paribus, a higher likelihood that MAS will tighten policy at the Apr 2026 MPS (our base case) by raising the S$NEER band slope by 50bps to 1.0% p.a., although there remains a possibility that policy normalisation could be delayed to the Jul 2026 MPS."

"We assess that the macro impact of the ongoing Middle East conflict is likely to be more prominent on inflation than on growth, at least in the near term."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)