Insights 
VT 
Singapore’s Gross Domestic Product (GDP) contracted by 0.6% on a quarter-on-quarter basis in the first quarter. This result is above the anticipated decline of 1%.
The GDP data provides insight into the economic performance of Singapore. It reflects the country’s economic health and can influence economic policies.
Economic Contraction Analysis
This contraction indicates a reduction in economic activity compared to the previous quarter. Despite the decline, the actual figure was more favourable than the forecast.
The data can impact market sentiment and might influence future business and investment decisions. Understanding GDP trends is important for comprehending broader economic developments.
While the contraction of 0.6% in Singapore’s GDP during the first quarter might seem concerning at a glance, the number actually turned out less harsh than the previously expected 1% decline, which comes as a modest positive surprise. This tells us that while momentum has slowed, the economy managed to hold up slightly better than feared, especially in an environment where high interest rates and subdued global demand persist. These are not the sharp shifts we might see during a credit event or structural shock, but they do reflect softening growth across key sectors.
At this stage of the year, this performance suggests that caution remains warranted, but also that worst-case scenarios have not materialised—at least not yet. A quarterly contraction, taken in isolation, doesn’t automatically signal a downturn, but we should note that quarter-on-quarter declines, particularly when they follow a stretch of modest activity, are taken seriously by those tracking economic cycles. It’s not lost on us that GDP tends to lead broader sentiment; market participants are sensitive to these figures because they often mark inflection points in expenditure, employment, and confidence.
From an activity point of view, what matters now is whether this contraction proves temporary or if it turns into a pattern. Policymakers tend to watch this metric closely because they use it to adjust expectations around spending and tightening. Even though the actual performance was slightly better than expected, improvement on such a narrow margin shouldn’t yet be treated as a sign of resilience, particularly given how external demand remains wobbly.
Market Reactions to GDP Figures
For those of us monitoring derivatives, the takeaway is to position for an extended period of moderate volatility, rather than directional acceleration in either inflation or growth. The shorter-dated end of the curve often reacts first to GDP data, and spreads began widening in anticipation of weaker activity already last week. With this print, there is less urgency to hedge against a heavy-handed policy response, but there is also no fresh momentum to support risk-on trades.
Borrowing costs are still elevated, and tighter financial conditions haven’t quite filtered through the entire economy, which keeps downside risk on the radar. In derivative pricing, what ends up mattering is not only where the data lands, but how far consensus was from reality. In this case, the surprise was slightly positive but unlikely to shift forward guidance meaningfully.
Hedging strategies might still favour flatteners and volatility plays linked to weaker production numbers in the second quarter. Macro positioning remains sensitive to open interest, and unless we get a rebound or a change in trade volumes, risk-premiums are unlikely to compress.
Lim’s team has flagged that any renewed weakness in trade or manufacturing—whether driven by China or broader regional softness—could lower projections again going into the third quarter. For now, the central concern remains growth—more so than inflation—which is already starting to be reflected in interest rate futures.
The GDP figure should not be dismissed simply because it didn’t match the worst-case scenario. Instead, the 0.6% drop confirms that activity has cooled meaningfully. We are watching closely how this guides capital allocation. Yield curves, forward rates, and even longer-tenor swaps are adjusting, but without the kind of movement that would signal a decisive pivot. As some participants retest thresholds, especially in FX and rates vol, we keep bias tilted towards neutral-to-lower growth expectations.
The upcoming releases—particularly around export volumes and purchasing managers’ indexes—will help determine if this contraction was isolated or part of a drifting trend. Risk models are likely to downgrade near-term demand assumptions unless we see a reversal in trade flows soon. Until then, avoidance of aggressive positioning might remain the better course.
