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Singapore’s economy grew at its slowest pace in the first three months of 2023 since recovering from the pandemic-enforced contraction in the January-March quarter of 2021, as per government data. The country’s gross domestic product (GDP) grew by 0.1% year-on-year in the first three months of 2023. In the previous quarter, growth stood at 2.1%.
“Singapore’s GDP growth took a considerable hit due to slowing global trade, resulting in five consecutive months of contracting non-oil domestic exports and industrial production,” said economists at ING.
The Monetary Authority of Singapore (MAS) for the first time in two years the kept its monetary policy unchanged on Friday. By doing so, the city-state has joined the ranks of Australia, Canada, India, Indonesia, and South Korea.
The monetary policy of Singapore last remained unchanged in April 2021. Then, from October 2021, it was tightened five times in a row, including two off-cycle tightening actions in 2022 to combat inflation.
Inflation in Singapore at a 14-year high
In January and February 2023, Singapore’s core consumer inflation rate reached a 14-year high of 5.5% while headline inflation declined by 6.5% year-on-year. Food prices witnessed an 8.1% increase and price gains were registered in four other sectors.
As per the Singapore-based DBS bank, the increase in inflation in the first two months of 2023 was due to an increase in the city-state’s goods and services tax (GST). Other reasons include domestic factors such as rising labour costs, a tight labour market and rising residential property.
“While inflation is still elevated, MAS’ five successive monetary policy tightening moves since October 2021 have tempered the momentum of price increases. The effects of MAS’ monetary policy tightening are still working through the economy and should dampen inflation further,” the MAS said in a statement.
Looking forward, the monetary authority anticipates core inflation in the country to average between 3.5% and 4.5% in 2023 while headline inflation is expected to stay between 2.5% and 3% during the same period.
“Still elevated inflation should have the MAS on notice ahead of the April meeting. With price pressures still potent, the MAS will likely need to retain its hawkish stance until inflation slows considerably and approaches target,” opined ING.
Reopening has benefitted Singapore GDP growth
While Singapore is witnessing a slowdown in GDP growth, the country’s economic reopening has benefited its tourism industry which accounts for around 4% of its GDP.
The country’s tourism board anticipates that tourism activity will return to pre-pandemic levels by 2024 as more visitors flock to the city-state. According to official data, international visitor arrivals in Singapore touched 6.3 million in 2022, above the Singapore Tourism Board’s (STB) prediction of four to six million visitors.
Singapore’s tourism board projects that increasing flight capacity will enhance international visitor arrivals to 12 to 14 million in 2023, bringing tourist receipts of SGD 18 bn (~$13.57 bn) to SGD 21 bn (~15.83 bn).
However, the manufacturing sector is facing lower demand from major trading partners such as China and Europe. And the future looks gloomy for the country’s electronic manufacturing segment which accounts for 40% of the city-state’s manufacturing sector output.
“The Singapore electronics sector will face growing headwinds in the near term due to continued weakening growth momentum expected for the US and EU in 2023,” said S&P Global. All in all, the country’s manufacturing sector shrank 6% while the services sector expanded 1.8% year on year in the first three months of 2023.
Meanwhile, the Singapore dollar depreciated by 0.35% after the country’s central bank decided to not make changes to its monetary policy. Looking forward, the Singapore GDP growth is expected to slow to 0.5-2.5% in 2023, down from 3.6% last year.
“Singapore’s GDP growth is projected to be below trend this year… With intensifying risks to global growth, the domestic economic slowdown could be deeper than anticipated,” informed MAS.
