Volkswacht Bodensee - AI chip demand drives 6% growth for Singapore in first quarter

As a major electronics hub, the city-state has seen a significant increase in the production of memory chips and server components that are essential for the data centres that power AI tools.

Due to the "better-than-expected" growth, the trade ministry said it would maintain its forecast for the economy to expand 2.0 to 4.0 percent in 2026.

That is despite the impact wrought on economies worldwide by the conflict in the Middle East.

The ministry warned that "downside risks to Singapore's economic outlook have risen significantly", saying it would monitor global developments and adjust forecasts if necessary.

The first-quarter growth -- extending expansion of 5.7 percent in the December 2025 quarter -- was "driven by strong performance of the wholesale trade, manufacturing and finance and insurance sectors", the ministry said in a statement.

As an export-oriented economy with a small domestic market, Singapore is usually seen as a bellwether for international trade.

Disruption to oil supplies and other resources such as fertiliser and aluminium due to the closure of the Strait of Hormuz have caused a spike in prices, driving up inflation and dampening consumption.

Sectors related to Singapore's role as a major oil-refining hub have been negatively affected.

But "AI-related demand has remained robust and should continue to support the growth of regional economies throughout the year", the trade ministry said.

Governments and tech companies worldwide are pouring hundreds of billions of dollars into building data centres that can power AI tools such as chatbots, image generators and agents.

"In particular, robust AI-related demand led to growth in the machinery, equipment and supplies segment of the wholesale trade sector, as well as the electronics and precision engineering clusters within the manufacturing sector," the ministry said.

Exports for the first quarter rose 9.6 percent compared to the year before, bolstered by the electronics sector, said Enterprise Singapore, another government agency, in a separate statement.

A.Ammann--VB