UOB’s Senior Economist Alvin Liew kept Singapore’s 2026 GDP growth forecast at 3.6% and 2027 at 2.0%. February industrial production fell by -7.2% m/m (seasonally adjusted) and -0.1% y/y, versus Bloomberg consensus and UOB’s forecast of -0.8% m/m and +14.1% y/y. The February data showed broad weakness, although electronics still had support linked to AI demand. UOB assessed that risks to the growth outlook are now tilted to the downside, with manufacturing and trade most exposed.

Conflict Risks And Growth Exposure

UOB said a prolonged US/Israel–Iran conflict lasting beyond one quarter could weigh on activity through manufacturing, which is about 21% of GDP. It could also affect wholesale trade (about 13% of GDP) and transportation and storage (about 6% of GDP). The bank noted that weaker sentiment and supply-chain disruptions could reduce external demand. This would add pressure on Singapore’s exports. The article was produced using an artificial intelligence tool and reviewed by an editor. The February industrial production figures were a significant negative surprise, contracting -0.1% year-on-year against strong growth expectations. This unexpected weakness, a sharp reversal from January’s 11.2% growth, has rattled confidence in the manufacturing sector. As a result, we have seen the Straits Times Index (STI) react by dipping below the 3,200 support level for the first time this quarter.

Market Positioning And Hedging

Given the rising probability of a slowdown, we believe traders should consider hedging long equity portfolios. Purchasing put options on the STI, or on specific cyclical stocks within the transport and manufacturing sectors, offers a direct way to protect against a further downturn. This cautious approach seems justified until we see a stabilization in the economic data. This dimmer outlook is also weighing on the Singapore dollar, which we’ve seen weaken to the 1.3650 level against the US dollar. This reflects a growing view that the central bank may have less incentive to maintain its strong currency policy. We are now pricing in a greater chance of a neutral or even dovish policy shift later this year. We are seeing a clear increase in market anxiety, with implied volatility on near-term STI options having jumped by over 15% in the last week alone. This indicates that the market is bracing for larger price swings in the weeks ahead. Strategies that benefit from rising volatility, such as long straddles on the index, could become more attractive. This situation is a notable shift from the optimism we observed in the fourth quarter of 2025, when the manufacturing PMI held comfortably above the 50.5 expansionary level. Back then, the recovery felt more durable and broad-based. The current data from early 2026 suggests this foundation is now more fragile than we previously thought. External risks from geopolitical tensions are a primary concern, especially with recent reports of shipping delays and rising insurance premiums for routes through the Strait of Hormuz. Any prolonged disruption to this key trade channel would disproportionately impact Singapore’s trade and logistics sectors. While AI-related electronics exports remain a bright spot, it is clear they may no longer be enough to offset weakness elsewhere. Create your live VT Markets account and start trading now.

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