After reaching highs of 6.1% in 2022, inflation gradually eased to 0.9% in 2025, below the pre-pandemic average of 1.7%. With low commodity prices, soft domestic demand and a strong currency, we expect inflation to remain below the pre-pandemic average at 1.1% in 2026 and 2027. After a monetary-policy tightening cycle across 2022-2023, the Monetary Authority of Singapore’s (MAS) stance pivoted in 2025, reducing the slope of the S$NEER policy band twice in the first half of the year before remaining on hold in the second half of the year. We expect no further change to monetary policy in 2026, though tightening could potentially be considered, should inflation firm up meaningfully and/or the growth momentum turn out stronger than we expect.

After a fiscal deficit of -6.7% of GDP in 2020, the economic recovery and the rollback of broad-based supportive measures have brought the fiscal balance back into positive territory, reaching +4.4% in 2024. The fiscal balance stabilized at +3.1% in 2025 and should slightly reduce to +2.7% in 2026 and +2.4% in 2027 as targeted policies, such as measures for the labor market or support for technology sectors, continue to be rolled out. Medium- and long-term challenges such as an ageing population, risks from climate change and the need to maintain competitiveness among rising competition from regional peers will constrain the surplus from increasing further.

Short-term financing risk remains low on the back of strong macro-fundamentals – both in terms of public and external finances. Singapore remains one of the few countries with the top AAA credit rating from leading credit agencies. Public debt is expected to remain elevated in 2026 and 2027, slightly above 175% of GDP, but should not be a cause for concern as it is entirely domestic and is issued to meet specific long-term objectives. Moreover, the economy is a net external creditor.

On the back of favorable trade policies and infrastructure, Singapore continues to solidify its strength as a globally renowned entrepot. However, this also means that the economy is vulnerable to ongoing global trade disruptions and the rise in protectionism. Looking at external balances, Singapore has run a current account surplus for decades, with an annual average of +18% of GDP in the 2010s, and accumulated ample foreign exchange reserves. The solid current account balance reflects a surplus in trade in goods and services, partly offset by a deficit in the income account, due to the repatriation of profits by foreign firms and interest payments on external debt. The current account balance is likely to stay around +17% of GDP in 2026-2027 but Singapore’s dependence on its external sector exposes it to challenges beyond its control.

Singapore offers a prime business environment for corporations, thanks to its liberal landscape in terms of trade and investments, transparent political system, favorable tax policies, solid infrastructure and a strong workforce. The World Bank Institute’s annual Worldwide Governance indicators suggest that the regulatory and legal frameworks are business-friendly, and the level of corruption is low. On broadly similar lines, the Heritage Foundation’s annual Index of Economic Freedom Survey 2025 ranks Singapore 1st out of 184 countries, reflecting strengths in areas such as trade freedom, property rights, government integrity, tax burden, government spending, business freedom, investment freedom, monetary freedom and financial freedom. However, Singapore scores less favorably with regard to environmental sustainability, owing to a very low level of renewable electricity output and a high level of water stress. Overall, Singapore ranks 105 out of 210 economies based on our 2025 proprietary Environmental Sustainability Index.

The political landscape in Singapore remains stable, transparent and efficient. The new prime minister, Lawrence Wong, succeeded Lee Hsien Looing in May 2024 (both are from the People’s Action Party, PAP) and saw his mandate strengthened by the PAP victory in the May 2025 general election. He will continue to address medium- and long-term challenges such as social inequality, cost of living and housing affordability, immigration, job-skill mismatches and the perception of an inadequate social safety net. Vulnerabilities in the political landscape arise from Singapore’s ethnic diversity, but escalated racial tensions are not likely due to constraints on press freedom and public demonstrations.