Yahoo Finance Singapore’s near-term outlook remains uncertain with downside risks: MAS
Singapore's economy has “slowed discernibly” since 4Q2022, weighed down by contractions in the trade-related sectors.
The Monetary Authority of Singapore (MAS) says Singapore’s economic growth prospects for 2023 have become more uncertain, amid banking stresses abroad and weakness in the trade-related sectors.
The Singapore economy has “slowed discernibly” since the last quarter of 2022, weighed down by contractions in the trade-related sectors amid the global manufacturing downturn, says the MAS in its Macroeconomic Review published April 26.
Advanced estimates released by the Ministry of Trade and Industry show that the Singapore economy contracted by 0.7% on a q-o-q seasonally-adjusted basis in 1Q2023, following the marginal 0.1 expansion in 4Q2022.
Published twice a year, the Macroeconomic Review documents the Economic Policy Group’s analysis and assessment of global and domestic economic developments, which form the basis for policy decisions conveyed in the Monetary Policy Statement (MPS).
In its April MPS, the MAS maintained the prevailing rate of appreciation of the S$NEER policy band, the central bank’s first pause after five consecutive rounds of policy tightening since October 2021.
In the first quarter of the year, MAS core inflation rose further, reflecting the expected boost to consumer prices from the GST rate hike. The MAS expects core inflation to remain elevated over the next few months as accumulated business costs continue feeding through to consumer prices.
In Singapore, MAS core inflation is forecast to fall to around 2.5% by the end of 2023 and average between 3.5% to 4.5% for the year as a whole.
Meanwhile, CPI-All Items inflation is forecast to come in higher at 5.5% to 6.5%, reflecting the still-tight supply of COEs and firm accommodation costs.
However, looking beyond the GST-induced spike in January 2023, the MAS says core inflation, whose momentum has already slowed from its peak in mid-2022, will remain on a “broad moderating path” and slow more discernibly into the second half of the year.
Excluding the effects of the GST increase, core and headline inflation are expected to average 2.5% to 3.5% and 4.5% to 5.5% respectively.
Even including the impact of the GST increase, MAS core inflation is forecast to ease more discernibly in 2H2023 and end the year “significantly lower”. At the same time, output in the Singapore economy could slip more significantly below potential given the intensifying risks to the global growth outlook.
Against this backdrop, the MAS says it assessed that the prevailing monetary policy stance is “sufficiently tight and appropriate” for securing medium-term price stability. The effects of its five most recent monetary policy tightening moves are also still filtering through to the economy and will dampen inflation further, says the central bank.
Although domestic cost pressures are likely to persist in some sectors, their pass-through to consumer prices would be constrained by falling real wages and higher domestic interest rates.
Resident wage growth is anticipated to ease alongside the moderation in domestic labour market tightness, particularly in the external-facing sectors.
Globally, the MAS expects growth to weaken over 2023, as substantial monetary policy tightening over the past year filters through to the real economy and tail risks increase. While global headline inflation is forecast to moderate, core inflation remains above central banks’ targets, notes MAS.
While global inflation is forecast to moderate this year, core inflation is expected to decline “only gradually”, given that firm services demand and acute labour market imbalances that will take time to resolve.
Risks and uncertainties to global growth have also risen, with the rise in global interest rates surfacing “latent vulnerabilities” within the financial system. These factors present risks to global financial stability and the growth outlook of the global economy.
“The near-term outlook remains uncertain with downside risks. Should latent vulnerabilities in the global financial system emerge in the coming months, consumer and investor confidence could take a further hit, with adverse implications for the broader economy,” says the central bank.
Following the “firm start” to 2023, the MAS expects global economic activity to “slow markedly” over the coming quarters, as the full impact of the rapid and simultaneous tightening in global monetary policy over the past year filters through to the real economy. The boost from economic reopening and pent-up consumer demand is also set to wane.
“A broadening slowdown in the global electronics industry and banking stresses abroad have dampened Singapore’s growth prospects, especially for the external-facing sectors. At the same time, the pace of expansion in the domestic-oriented sectors should also moderate as higher consumer prices and interest rates restrain spending,” writes the MAS.
However, while the Singapore economy has been weighed down by its trade-related activities amid the global manufacturing and trade downturn, the MAS says that domestic-oriented sectors have remained “generally firm” thus far.
Barring fresh shocks to global supply, Singapore’s imported inflation, which has turned negative, should fall further alongside lower commodity prices and the stronger S$NEER. Import prices, which are already falling, should decline further in tandem with lower global commodity prices and the general strengthening of the Singdollar.
“The poorer performing trade-related sectors have limited spillovers given their relatively low inter-dependence with the rest of the economy,” says the MAS. “In addition, strong wage and consumption growth, as well as the ongoing recovery in tourism inflows, have lent support to the consumer-facing activities.”
See Also:
Click here to stay updated with the Latest Business & Investment News in Singapore
Singapore’s headline inflation down to 5.5%, MAS core inflation down to 5% in March (update)
MAS and People's Bank of China establish green finance taskforce
MAS sets aside $15 mil and five-year extension for grant supporting green bonds, loans
Get in-depth insights from our expert contributors, and dive into financial and economic trends
