Singapore’s GDP Growth to Be Lower in 2023, Gain Pace Next year

Singapore’s central bank – Monetary Authority of Singapore (MAS) – on Monday projected the city-state’s gross domestic product (GDP) growth to be at the lower half of the 0.5% to 1.5% range that was forecast for 2023, despite the sequential pick-up in GDP in the 3Q of this year after stalling in the first three quarters of the year.

However, Singapore’s economic growth is projected to improve gradually in the second half of 2024 and expected to come in closer to its potential rate for the full year, MAS noted.

In its macroeconomic review published on Monday, MAS said that there were signs of convergence (in y-o-y terms) among the broad clusters, with some recovery in the external-facing sectors, even as growth in the domestic-oriented sectors moderated.

“In the coming quarters, these adjustments are expected to continue, barring major shocks to the external economies,” the central bank said in the report, which it publishes twice a year (April and October) to coincide with the release of the MAS monetary policy statement (MPS).

The review looks at the analysis and assessment of macroeconomic developments in the Singapore economy by the Economic Policy Group (EPG) and shares with market participants, analysts and the wider public, the basis for the policy decisions conveyed in the MPS. It also features in-depth studies undertaken by the EPG as well as guest contributors, on the broader issues facing the Singapore economy.

The review also said that Singapore’s manufacturing sector should see a cautious recovery along nascent signs of stabilisation in the global electronics industry. At the same time, growth in the financial services sector seems to have bottomed out amid plateauing interest rates. The travel-related and domestic-oriented sectors should see a normalisation in growth as the post-reopening boost fades off.

Global Economy

Meanwhile, growth for the global economy is expected to ease further into 2024. This is said to reflect, in part, the cumulative impact of the tightening of monetary policies since early 2022.

Growth is set to retract in the G3 as the lagged impact of tighter monetary policy and diminishing saving buffers are expected to increasingly weigh on economic activities. The pace of recovery in China is also expected to be weighed down by the ongoing weakness in its property market. At the same time, Asian economies ex-Japan will see resilient domestic demand providing support.

The review further said: “Following this year’s rapid global disinflation, subsequent progress will slow as Asia ex-Japan labour market conditions remain tight. Asia ex-Japan is closer to realising their inflation targets but will be impacted by higher oil and food prices. The outlook is subject to several risks including a sharper China slowdown, stubborn inflation, and tighter financial conditions.”

Inflation

The report said that core inflation should resume a broadly moderating trend for the subsequent quarters with easing imported and domestic cost pressures keeping inflation on a downward trajectory in 2024. However, the increase in the GST rate and step-up in essential services inflation will lead to a pickup in core inflation in early 2024.

Imported inflation is expected to remain most with prices for global food commodities and manufactured goods continuing to decline. At home, the easing in labour market tightness should slow the pace of unit labour cost increases and dampen services inflation.

MAS core inflation continued to ease in the Q3 of 2023 with the pace of price increases slowing across a wider range of goods and services.

Notwithstanding higher electricity & gas prices leading to some volatility in inflation in the months ahead, MAS core inflation is projected to edge down to between 2.5% – 3% y-o-y by December. CPI-All Items inflation – or headline inflation – is forecast to pick up further in the next few months on the back of higher COE premiums and rising petrol pump prices.

In 2024, MAS core inflation is expected to average between 2.5% – 3.5% while headline inflation is expected to average between 3% – 4%.