Disclaimer: Unless otherwise stated, any opinions expressed below belong solely to the author. Data sourced from Singapore’s Ministry of Manpower.
Singapore’s economy is having an exceptionally strong year. GDP grew 5.9% year-on-year in the second quarter of 2026, after expanding 6.3% in the first. This led the Ministry of Trade and Industry (MTI) to raise its full-year forecast to 4.5-5.5% – up from the original 1.0% to 3.0%.
The main reason is Artificial Intelligence (AI).
Global spending on AI infrastructure is boosting demand for semiconductors, manufacturing equipment, cloud services and other technology-related activity. Singapore happens to be extremely well positioned to benefit.
But the gains are becoming increasingly concentrated.
In Q2, manufacturing grew 12.5%, with electronics output surging 33.8% and precision engineering rising 19.3%. Wholesale trade expanded 8.3%, while finance and insurance grew 6.2%.
Together, manufacturing, wholesale trade and finance accounted for around three-quarters of Singapore’s GDP growth during the quarter. Elsewhere, things looked rather different.
Retail grew by just 1%, accommodation 2.2% and professional services 2.4%, while embattled F&B contracted by 1.5%.
Singapore increasingly looks like a two-speed economy.
Productivity gap
The difference is even clearer in productivity. Value added per hour worked increased 15.4% in wholesale trade, 9.4% in information and communications, 7.6% in manufacturing and 5.1% in finance.
Across outward-oriented industries, productivity rose 6.9%. Among domestically oriented industries, it fell 0.1%.
This explains why GDP can grow close to 6% without everybody feeling that the economy is booming.
A semiconductor factory can increase output dramatically without hiring thousands of additional workers. The same is true of cloud computing, finance or wholesale trade. Restaurants and shops cannot scale in quite the same way.
Salaries
Over time, productivity growth is what allows wages to rise sustainably. That should benefit Singapore. But if it’s concentrated in one corner, it may widen differences between workers, creating a headache for the government, as some of the people benefit greatly while others see their incomes slide behind in real terms.
MTI research on AI adoption found that initial employment gains at companies using AI were concentrated among higher-earning local workers, mid-career employees and skilled foreign professionals.
Only as firms developed deeper AI capabilities did the benefits begin spreading more widely.
This suggests the early winners are likely to be engineers, semiconductor specialists, software developers, data professionals and workers in related business services.
But someone working in retail or F&B is participating in a very different economy.
There is already evidence that productivity is rising much faster than labour costs in some of the booming sectors. Unit labour costs fell 7.9% in manufacturing and 3.7% in wholesale trade in Q2.
That creates room for higher wages—but there is no guarantee the gains will be distributed evenly.
What happens if the AI boom ends?
This is a risk that was flagged by MAS, even as GDP figures should have the country celebrating. If AI-related investment is now responsible for a large share of Singapore’s growth, what happens if the boom ends?
Singapore would be exposed across several sectors at once, and the threat is not only a freeze at the current level of demand, but a dramatic contraction which could result in mass job losses.
Lower AI spending would weaken semiconductor demand. That would hit electronics manufacturing and precision engineering. Lower trade volumes would affect wholesale and logistics, while technology and financial services could suffer from weaker investment and asset prices.
Could that push Singapore into recession? Yes—if the reversal were severe enough.
That does not mean an AI downturn would automatically cause one. Construction remains strong, domestic consumption continues to grow, and Singapore’s economy is diversified.
But current growth is unusually concentrated.
When three sectors account for roughly three-quarters of quarterly GDP growth, losing momentum in those industries can change the headline numbers very quickly.
Singapore is benefiting enormously from the global AI investment boom.
But the scale of its growth also shows how exposed it is to downside risks if the bubble suddenly pops.
- Read other articles we’ve written on Singapore’s current affairs here.
Featured Image Credit: Leo Heng/ Unsplash
