Singapore's economy expanded by 5.9% year-on-year in the second quarter, driven by surging global demand for artificial intelligence, successfully mitigating disruptions to energy markets from the Middle East conflict.

On Tuesday, the Ministry of Trade and Industry (MTI) raised its full-year economic growth forecast to between 4.5% and 5.5%. This is a significant upward revision from the previous estimate of 2% to 4% made in May, when officials had anticipated that the Iran conflict would dampen global economic growth, leading to a lower projection range.

MTI data shows Singapore's gross domestic product (GDP) grew by 6.1% in the first half of the year. As an international trade hub, Singapore is highly vulnerable to geopolitical instability. Known as the "Asia of Houston" for being one of the world's most important oil and gas trading centers, the country was widely expected to be severely impacted by a global energy crisis.

In his National Day speech over the weekend, Prime Minister Lawrence Wong stated: "The impact of this conflict is still spreading globally, pushing up energy prices, disrupting supply chains, and raising the cost of living and doing business for households and enterprises." He added, "Despite the challenges, the Singapore economy has shown strong resilience. The growth momentum in the first half of the year has been impressive, and we expect this positive trend to continue."

MTI noted that the negative impact of the Iran conflict has been less than initially feared. Countries have used strategic oil reserves and switched to alternative energy sources, effectively curbing the rise in oil prices. Meanwhile, investment in the AI sector has far exceeded expectations, benefiting companies involved in the manufacturing and export of AI-related products like semiconductors.

Since the AI wave began in 2023, the four major US cloud giants—Google, Amazon, Microsoft, and Meta—have invested a cumulative $1.1 trillion in capital expenditure to build data centers, purchase high-end chips, and construct supporting power infrastructure. This capital spending is still intensifying this year, and Singapore is actively positioning itself as a regional core AI hub.

Prime Minister Wong stated, "AI is reshaping every industry and changing the way people work. Singapore will fully leverage AI to boost productivity and create better quality jobs."

However, just days before this optimistic AI-driven economic outlook was released, the Monetary Authority of Singapore (MAS) warned of downside risks to the global economy should the AI boom fade. The MAS, which functions as both the central bank and financial regulator, noted that global economic growth, capital investment, and financial market trends are deeply tied to the semiconductor and data center industries. A slowdown in these two sectors would have far-reaching consequences.

MAS Managing Director Ravi Menon cautioned: "If there is a large-scale contraction in AI investment, a decline in corporate investment appetite, lower semiconductor demand, and a negative wealth effect could significantly drag down global economic growth, potentially leading to a sharp tightening of global financial conditions." This warning from the MAS comes as concerns grow over the sustainability of the AI boom, with several leading chipmakers experiencing a drop in their share prices.