Singapore’s real GDP rose 4.6% year on year in 1Q26, and fell 0.3% quarter on quarter on a seasonally adjusted basis, based on MTI advance estimates. This followed 5.7% year on year growth and 1.3% quarter on quarter seasonally adjusted growth in 4Q25.
DBS kept its 2026 real GDP growth forecast at 2.8%. This is broadly in line with MAS expectations for the output gap to average around zero as growth slows through 2026.
Risks Ahead For Growth
DBS cited external threats to the outlook, including the Iran war shock and a global slowdown. MAS also noted downside uncertainties in the quarters ahead.
The report said the economy began 2026 on a firm footing but may face weaker conditions later in the year. Singapore’s high trade exposure leaves it open to renewed geopolitical shocks.
We are looking at a disconnect between Singapore’s strong first-quarter growth of 4.6% and the significant risks on the horizon. The Iran war shock and a global slowdown are now the main concerns for our highly open economy. Derivative traders should therefore view the positive start to 2026 with considerable caution.
The external pressures are already becoming visible in key economic indicators. Recent data shows China’s manufacturing PMI unexpectedly fell to 49.8, a sign of contraction, while Brent crude oil has spiked over 15% in the last month to trade above $105 a barrel. These developments directly threaten Singapore’s export demand and increase business costs.
Positioning For Higher Volatility
Given the official view that GDP growth will slow over the course of the year, we anticipate pressure on the Straits Times Index (STI). Traders should consider hedging long equity portfolios by buying put options for the coming months. This strategy provides downside protection while allowing for participation in any unexpected, short-term rallies.
The combination of geopolitical tension and economic uncertainty points towards rising market volatility. We believe positioning for this increase through derivatives could be a prudent strategy. This can be done by purchasing options that profit from a large price swing, regardless of the direction.
We saw a similar pattern unfold back in 2022 when global inflation fears suddenly hit export demand, even while Singapore’s domestic economy appeared robust. History suggests that external headwinds can quickly overwhelm local resilience. This reinforces the need for defensive positioning despite the recent strong GDP numbers.
With the Monetary Authority of Singapore expecting a slowdown, further aggressive strengthening of the Singapore dollar is now less likely. In a global risk-off environment, the SGD could weaken against safe-haven currencies like the US dollar. We see potential in options strategies that would benefit from the USD/SGD exchange rate moving higher.
