Singapore’s economy has grown faster than expected in the first three months of the year as furious demand for AI chips has outweighed the fallout of the US-Israel war on Iran.

Singapore’s gross domestic product (GDP) expanded 6 percent year-on-year in the first quarter, the Ministry of Trade and Industry said on Monday, comfortably beating an official advance estimate of 4.6 percent.

On a seasonally adjusted basis, GDP grew 1 percent from the previous quarter.

The Trade Ministry said GDP growth was driven by strong performances of the city-state’s wholesale trade, manufacturing, and finance and insurance sectors.

“In particular, robust AI-related demand led to growth in the machinery, equipment & supplies segment of the wholesale trade sector, as well as the electronics and precision engineering clusters within the manufacturing sector,” the ministry said in a statement.

The ministry kept its 2026 growth outlook steady at between 2 and 4 percent despite “downside risks” from rising energy and fertiliser prices amid the closure of the Strait of Hormuz to most shipping.

“These factors will weigh on global economic activity for the rest of the year,” it said.

“On the other hand, AI-related demand has remained robust and should continue to support the growth of regional economies throughout the year.”

Khoon Goh, head of Asia research for ANZ, said the GDP figures likely do not fully reflect the impact of the crisis in the Middle East.

“It will probably be more apparent in Q2, but the solid Q1 GDP sets up a strong base for the rest of 2026,” Goh told Al Jazeera.

“The AI-related investment boom is powering the manufacturing sector, and unless the Singapore economy runs out of oil, strong activity in manufacturing will continue to drive growth,” he said.

Nearly three months since the start of the war, the collapse of shipping via the Strait of Hormuz amid competing Iranian and US blockades continues to cast a shadow over the global economy.

The United Nations last week cut its 2026 growth forecast for the global economy to 2.5 percent, down from 2.7 percent, citing the fallout of the conflict.

Anthony Tay, an associate professor of economics at Singapore Management University, said Singapore’s latest GDP figures will be met “more with relief than glee” after local economists raised expectations for growth amid the AI boom.

“For the whole of 2026, the expectation among local economic forecasters is for around 3.6 percent growth, which is a brighter outlook compared with previous quarters … while acknowledging significant downside risks,” Tay told Al Jazeera.

Singapore, one of the world’s most trade-reliant economies, has played a major role in the global rollout of AI as a producer of semiconductors and semiconductor equipment.

The Southeast Asian country accounts for about 10 percent of semiconductor production and 20 percent of semiconductor chip equipment production globally.

Yeow Hwee Chua, an economics professor at Nanyang Technological University, said a key question is whether the strong growth can translate into a more broad-based expansion and “stronger household confidence.”

“The 6 percent year-on-year figure is strong, especially for a mature economy like Singapore,” Chua told Al Jazeera.

“It is certainly encouraging, although I would interpret it with some caution given Singapore’s high exposure to global demand and external conditions,” he said.