For local businesses, the lower cost of borrowing will encourage them to take up new loans, especially for exporting businesses. Lending to trade-related sectors, such as manufacturing, wholesale and retail trade, and transport and storage picked up notably in 2025, supported by buyers abroad front-loading their purchases ahead of US tariffs.
Lower interest rates will also likely provide relief for the construction sector as it relies on commercial bank loans to finance its operations. Construction firms have already been trending towards a lower risk of defaulting on repayments, though it is still high compared to all commercial bank loans. Higher labour and material costs continue to impact profitability and cash flows.
Small- and medium-sized enterprises (SMEs) may not immediately benefit from lower market interest rates as SME lending rates are typically less responsive, especially if the SME loan applicant lacks collateral and credit information.
SLOWER GROWTH AHEAD
Despite these positive economic signals, the overall outlook remains uncertain. Companies’ ability to plan and invest requires predictability, but all signs suggest US President Donald Trump is not done with his tariffs, after a string of sector-specific tariffs that have been announced or suspended on short notice.
Singapore will be more greatly affected by these external developments rather than domestic consumption, especially if growth among key trading partners such as China and the US slows.
Economic data shows China is still in deflation, while inflation in the US has started trending up again. There were concerns about whether the Fed made the right move at a tricky time when the US job market is weak and inflation has been sticky. US analysts are even forecasting that the US economy might be headed for stagflation.
