Shipping through the Strait of Hormuz has been severely constrained since late-February. Global inflation is expected to rise as disruptions to the flow of oil and gas from the Middle East has triggered sharp increases in the prices of critical commodities. Global growth will be impacted by the supply disruption, and subsequently by weakening aggregate demand. A further drag to growth could emerge from a sustained tightening in global financial conditions.

There is significant uncertainty around the outlook for shipping flows through the Strait of Hormuz. In the meantime, earlier energy supply shortfalls and higher input costs will continue to weigh on energy‑dependent industries in Singapore before spilling over to the rest of the economy over the course of the year. However, continued resilience in global AI-related capex will provide some support. All in, GDP growth is expected to slow in 2026 from the exceptional outturn in 2025. The output gap is forecast to average around zero percent for the full year.

MAS Core Inflation remained modest at around 1% in early 2026, reflecting benign business cost pressures as well as the disinflationary impact of administrative price adjustments.

As a result of the global supply shock, however, imported inflationary pressures are intensifying. Fuel prices have risen significantly, while the cost of a wider range of imported goods and services are expected to increase. This will pass through to higher consumer prices for non-cooked food, electricity & gas, retail & other goods, as well as travel and transportation-related components.

For the year as a whole, both MAS Core and CPI-All Items Inflation are now forecast to average 1.5–2.5%, up from the previous projection of 1.0–2.0%.

The situation in the Middle East remains highly uncertain. A prolonged disruption to global energy supplies would pose upside risks to inflation as well as downside risks to growth. The risks to growth could compound if global financial conditions significantly tighten or if AI demand weakens.