Geopolitical risk and macroeconomic uncertainty top concerns for Singapore financial institutions, according to MAS Systemic Risk Survey.

The International Monetary Fund's downward revision of Singapore's 2025 GDP growth to 1.7% from 4.4% in 2024 highlights the severe impact of escalating trade tensions and geopolitical uncertainty on the city-state's open economy and its financial sector. Real GDP growth accelerated to 4.4% in 2024 on the back of stronger manufacturing and services expansion, but the IMF now projects growth will sharply slow to 1.7% in 2025, in large part reflecting recent trade tensions and elevated global uncertainty. First-quarter 2025 output contracted by 0.6% quarter-on-quarter on a sequential seasonally-adjusted basis due to a slowdown in externally-oriented sectors like manufacturing and wholesale trade.

Growth Outlook Deteriorates Amid Trade War Escalation

DBS Group Research maintained its 2025 real GDP growth forecast at 2.8% in February 2025, but noted that the full-year outlook faces considerable downside risks, especially from rising geopolitical tensions due to higher tariffs and elevated trade policy uncertainty. The Ministry of Trade and Industry (MTI) maintained its 2025 growth forecast range of 1.0% to 3.0%, with DBS viewing the lower bound as leaving scope for any negative growth disappointment. MTI sees significant global economic uncertainties, with risks tilted to the downside, reiterating two key downside risks: ongoing trade frictions among major economies and risks of escalation in geopolitical conflicts, and tighter financial conditions from disruptions to the global disinflation process. The macroeconomic policy mix, including Budget 2025, aims to manage downside growth uncertainties.

Real GDP Growth (%)Source: Orionmano Industries

Since February 2025, trade tensions have increased with the U.S. administration imposing a series of tariffs on certain sectors such as automobiles, and varying levels of tariffs on many economies, together with retaliation towards the United States by some economies. Despite facing a relatively lower effective tariff rate compared to other economies in the region, Singapore's economy is highly exposed to the increase in trade tensions given its openness to global trade, and via negative confidence effects from higher uncertainty.

Financial Sector Vulnerabilities Highlighted by MAS Survey

The chief risk officers of key financial institutions in Singapore highlighted geopolitical risk and macroeconomic uncertainty as the two most significant risk factors for Singapore's financial system, according to the 2025 Systemic Risk Survey conducted by the Monetary Authority of Singapore. Citations of macroeconomic uncertainty as the most impactful risk increased markedly between the H1 and H2 surveys, as the boost from front-loading activities faded and higher tariffs took effect in the region, reducing growth prospects.

Nearly a third of financial institutions citing geopolitics mentioned sanctions as a key risk of conflict escalation. Sanctions could affect banks' and fund managers' operations by making compliance more costly, compelling the abrupt sale of assets that could lead to financial market volatility. Respondents also expressed concerns over the protracted conflicts in Eastern Europe and the Middle East, noting how these conflicts might trigger energy and commodities supply shocks. Beyond near-term credit and market risks, financial institutions were also wary of the persistent effects of trade tensions, with geopolitical factors increasingly shaping supply chain configurations, particularly in strategic sectors like technology and critical industries.

Trade Tensions and Supply Chain Disruption Risks

MTI warned that potential escalations in geopolitical tensions could lead to supply disruptions in energy commodities and renewed pressures on global energy prices. While Singapore faces the lowest rate of 10% tariffs compared with much higher rates for most of its Asian peers, it still faces significant risk if the U.S. decides to impose sectoral levies on its key exports, such as pharmaceuticals and semiconductors. The trade-driven economy also suffers if its trading partners see lower economic growth. MTI noted that the growth of Singapore's major trading partners in the second half of 2025 is expected to moderate from that in the first half, as the boost from front-loading activities dissipates and U.S. reciprocal tariffs take effect.

Over the medium term, the IMF noted that deepening geoeconomic fragmentation could threaten Singapore's financial interconnectedness and role as a global financial center. The IMF also highlighted that further escalations in trade tensions could rapidly reduce external demand, and that policy uncertainty and associated market volatility could induce further tightening of global financial conditions, generating adverse spillovers to Singapore's financial system resiliency and investment.

Authorities' Vigilance and Policy Response

Given that the corporate sector, especially highly leveraged firms and SMEs, is potentially vulnerable against trade tensions and policy uncertainty, including increased borrowing costs, MAS has been stepping up vigilance, including refining the methodology and developing more severe corporate stress testing scenarios. The IMF assessed that the financial sector remains resilient, while continued vigilance is warranted against vulnerabilities amid heightened global uncertainty and a rise in global financial stability risks. Staff welcomed continued implementation of the Forward Singapore initiative, including the introduction of temporary financial support for involuntarily unemployed individuals, and efforts to step up AI adoption to enhance productivity, including through re-skilling of the workforce.

Despite the headwinds, Singapore's banking system has been a major beneficiary of geopolitical uncertainty, continuing to attract foreign funds into the Singapore banking system. Since 2022, uncertainty caused by geopolitical events has led to a steady inflow of foreign deposits, and with uncertainty unlikely to abate, Singapore's safe-haven status continues to elevate in stature.

As trade tensions persist and supply chain realignments continue, Singapore's financial sector will need to balance its safe-haven appeal against mounting downside risks from slower growth, higher compliance costs, and potential asset volatility.