Iran conflict to hit Singapore growth and raise inflation outlook, says Gan Kim Yong

Singapore’s economic growth is expected to be affected in the coming quarters, while inflation may rise beyond earlier forecasts, Deputy Prime Minister Gan Kim Yong said in Parliament on 7 April 2026.

Speaking during a ministerial statement on the Middle East conflict, Gan warned that the crisis is unlikely to ease soon and could have prolonged economic consequences.

“The crisis is unlikely to be over anytime soon, and we must be prepared for its effect to persist for some time,” he said.

Growth outlook to be reassessed

Singapore’s gross domestic product (GDP) forecast will be reviewed in May, following an earlier upgrade in February to between 2 and 4 per cent.

Gan said early data suggested the economy remained resilient in the first quarter of 2026, but cautioned that this momentum may not last.

“However, growth in the coming quarters is likely to be affected by the ongoing conflict,” he added.

The Monetary Authority of Singapore will also factor recent developments into its next inflation assessment, scheduled for release on 14 April 2026.

Energy shock ripples across global economy

A key driver of the economic strain is the closure of the Strait of Hormuz, which has triggered a global energy shortage and sharply increased prices.

Gan noted that the disruption extends beyond oil and gas, affecting a wide range of industries reliant on energy-based inputs.

“The disruption extends to other key products too, particularly those that use oil and natural gas as feedstock or starting material,” he said.

Fertilisers, largely produced using natural gas, have seen steep price increases. Reduced usage by farmers could lead to lower crop yields and rising global food prices.

Other impacted materials include aluminium, used in transport and manufacturing, and helium, which is critical for semiconductor production and medical imaging.

“These disruptions are cascading through the global economy,” Gan said.

Rising costs and weakening demand

Higher energy prices have pushed up transportation and logistics costs, with airfreight rates between Asia and Europe nearly doubling since the conflict began.

Gan warned that these increases would filter through supply chains and consumer markets.

“This will eventually push up costs of other items including food and grocery supplies,” he said.

He added that rising costs for businesses and consumers would dampen demand and slow global economic activity.

“All of these pressures could intensify further in the coming weeks,” he noted.

Sector-specific impact in Singapore

Gan outlined how different sectors in Singapore are likely to be affected unevenly.

Industries relying heavily on natural gas and crude oil derivatives are expected to face the most direct impact.

Downstream chemical firms are particularly exposed, while broader manufacturing segments such as electronics and precision engineering will also be affected by rising energy costs.

These sectors are typically energy-intensive, making them vulnerable to sustained price increases.

Services sector faces cost and demand shocks

Outward-oriented services, including air and sea transport and tourism, are expected to face both higher operating costs and weaker global demand.

Domestically-focused sectors such as retail, food services and private transport will also encounter rising expenses, particularly in utilities and fuel.

“Taken together, these sectoral impacts will weigh on economic activities in the coming quarters, although the extent remains uncertain as the conflict is still unfolding,” Gan said.

Inflation expected to rise further

Singapore, which imports nearly all of its energy, is particularly exposed to global price shocks.

Gan reiterated earlier warnings from the Energy Market Authority that electricity and gas tariffs are likely to increase more sharply in the coming months.

“We should therefore expect a much sharper increase in the next tariff adjustment, which will fully reflect the higher costs of fuel,” he said.

“These cost increases will feed through to broader inflation in Singapore.”

Earlier projections had placed both headline and core inflation at between 1 and 2 per cent for 2026, following easing price pressures in 2025.

However, the current geopolitical situation has altered that outlook.

“Consequently, we now expect Singapore’s overall inflation for 2026 to be higher than earlier projected,” Gan said.

He added that prolonged conflict could further raise import prices as inflation increases in Singapore’s trading partners.

“These pressures will be felt by households in more expensive electricity, transport and daily necessities,” he noted.

Risk of escalation remains

Gan also highlighted the risk of further escalation in the conflict, which could trigger a broader global energy crisis.

Such a scenario would likely slow economic growth worldwide while accelerating inflation.

Noting Singapore’s structural reliance on imports, Gan stressed the importance of strengthening resilience measures.

Strengthening trade and supply resilience

Singapore is taking steps to diversify energy sources and build up inventories, but long-term dependence on imports remains unavoidable.

“It is therefore critical that we continue to strengthen our partnerships with like-minded countries, and uphold an open and rules-based trading system,” Gan said.

He emphasised that maintaining credibility and trust with trading partners is essential for ensuring the continued flow of goods and energy.

Singapore has reaffirmed commitments with Australia and New Zealand to maintain supply chains, including petroleum and liquefied natural gas.

At the regional level, Asean ministers have also underscored the importance of stable and reliable energy and food supply chains.

Support measures and economic transformation

The Government is preparing additional support measures for households and businesses affected by rising costs.

Gan stressed that periods of disruption also present opportunities for transformation.

“Periods of disruption such as this will test the resilience of countries and economies, but they also create impetus for firms to transform, diversify, and deepen their capabilities,” he said.

He added that Singapore must continue implementing recommendations from its Economic Strategy Review to remain competitive.

“If we stay disciplined, deepen our trust in each other, preserve our capabilities, and use this period to sharpen our competitive edge, Singapore will be well placed not only to weather this crisis, but to emerge from it stronger,” he said.