Singapore is entering another period of global volatility with the advantages policymakers like to have: steady growth, low inflation, a resilient banking system and deep fiscal reserves. But the International Monetary Fund warned Monday that the city-state’s economic outlook has become more uncertain as the war in the Middle East feeds through energy prices and supply chains.

An IMF staff team, led by Masahiro Nozaki, completed its 2026 Article IV mission to Singapore after discussions with Singaporean authorities and other stakeholders from May 7 to May 18. The findings are preliminary and will form the basis of a report to be considered by IMF management and the IMF Executive Board.

The fund’s central message was measured but clear: Singapore is strong, but not insulated.

“Singapore is navigating another year of elevated global uncertainty,” Nozaki said in a statement at the end of the mission. “Most notably, the war in the Middle East is transmitting to the economy through an energy shock.”

The IMF said Singapore’s economy expanded at an average pace of 3.9 percent from 2023 to 2025, while inflation remained low and stable. The country’s financial system, supported by a well-capitalized and liquid banking sector, has also remained resilient. Singapore’s fiscal reserves, which were used during the COVID-19 pandemic, remain available if another major shock occurs.

Still, the fund has revised the near-term outlook. Before the Middle East conflict escalated, Singapore’s growth was expected to moderate gradually from 2026 as private investment and net exports normalized. Taking the war’s impact into account, the IMF now projects growth of 3.5 percent in 2026 and 2.7 percent in 2027.

The expected slowdown reflects higher input costs and short-lived supply chain disruptions, particularly for energy-intensive and trade-related industries. Singapore’s highly open economy makes it especially sensitive to shifts in global trade, energy prices and investor confidence.

At the same time, the global AI boom is still providing support. The IMF said the technology upcycle continues to offer “tailwinds” for Singapore, a country that has positioned artificial intelligence as a central part of its national growth strategy.

Inflation is expected to rise this year. The IMF projects headline inflation will reach 2.6 percent in 2026, largely because of the pass-through from higher energy prices. It expects inflation to ease to 1.9 percent in 2027, assuming broader second-round effects remain contained and inflation expectations stay stable.

But the forecast comes with substantial risk. The IMF said risks to growth are tilted to the downside, while inflation risks are tilted to the upside. A prolonged or escalating war in the Middle East could drive energy prices higher and create shortages in fertilizer and petrochemical products. That, in turn, could raise costs across the economy while weakening both domestic and external demand.

The IMF also flagged two other threats: rising global trade tensions and a possible bust in the global AI boom. Either would hit Singapore’s export-oriented economy.

Against that backdrop, the IMF said monetary policy tightening by the Monetary Authority of Singapore in April 2026 was appropriate. The move, it said, helped keep inflation expectations anchored as domestic energy prices rose.

“Going forward, the significant upside inflation risks highlight the possibility that inflation expectations can rise, especially if the energy shock persists,” Nozaki said. He added that MAS should remain data-dependent and be prepared to tighten further if second-round inflation pressures emerge.

On fiscal policy, the IMF expects Singapore’s fiscal surplus to narrow to 1.0 percent of GDP in fiscal year 2026, which runs from April 2026 to March 2027. That compares with a surplus of 1.6 percent of GDP in fiscal year 2025. The decline is mainly due to higher development expenditure.

The fund described the government’s moderately expansionary fiscal stance as broadly appropriate, saying it is consistent with earlier IMF recommendations that Singapore gradually reduce fiscal surpluses to accommodate rising medium-term spending needs.

However, the IMF also urged caution. It said the government should be ready to provide temporary and targeted support for households and businesses affected by the war in the Middle East, but warned that fiscal policy should be implemented carefully so it does not add to inflation pressures.

Singapore’s financial sector was described as resilient. Banks remain well-capitalized, liquid and profitable, supported by strong asset quality. Stress tests conducted by authorities indicate overall resilience among both banks and non-bank financial institutions. Systemic risks from the housing sector remain contained.

The IMF nevertheless called for continued vigilance, particularly around banks’ cross-border exposures, vulnerable companies and the links between banks and non-bank financial institutions. It welcomed Singapore’s efforts to strengthen stress testing, improve oversight of non-bank financial institutions and continue contingency planning.

The report also highlighted Singapore’s push toward more inclusive growth. The IMF noted that AI has become part of the country’s national growth strategy and that the fiscal year 2026 budget includes initiatives to help firms adopt AI.

But AI also brings labor market risks. Because Singapore has a high share of skilled jobs, the IMF said its workforce is exposed to the increasing use of AI in the workplace. The fund welcomed ongoing efforts to re-skill and upskill workers, describing them as important as the economy adapts.

For Singapore, the IMF’s message is less a warning of crisis than a reminder of exposure. The country remains one of the world’s best-prepared economies, but its strengths are being tested by a global environment where energy shocks, trade tensions and technological disruption can move quickly across borders.