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Rebounding from the record contraction of 4.1% seen in 2020, Singapore’s economy posted a better than expected 7.6% expansion last year, lifted by the manufacturing, finance and insurance, and wholesale trade sectors. The pandemic-hit island state is now on the road to recovery, aiming for gross domestic product (GDP) growth of 3% to 5% this year.
With a 95% Covid-19 vaccination coverage and a steady rollout of booster injections, the city-state’s government is committed to reopening its borders to the rest of the world in 2022 and plans to adjust restrictions beginning March 15. Eyeing to restore passenger volumes to at least 50% of pre-Covid levels this year, authorities are focusing on the opening of Vaccinated Travel Lanes (VTLS), which will allow quarantine-free travel from 32 nations and regions.
The gradual reopening of borders for international travel will result in Singapore’s economy growing 3% in 2023, according to a March survey of 23 economists, conducted by the nation’s central bank Monetary Authority of Singapore (MAS). Overall, 64.7% of the respondents cited “reopening borders to international travel” as an upside risk to Singapore’s growth outlook.
The survey predicts economic growth in 2022 at 4%, in line with the official forecast, while the Q1 2022 forecast was at 3.7%.
“As Singapore continues its effort to inoculate the remaining population and press forward with the reopening of the economy, particularly revitalising the struggling travel-related sector, contributions to GDP growth from the various sectors will become less lop-sided, and the recovery will become more even,” says Irvin Seah, Economist at DBS Bank.
Singapore’s long term growth plans
The government has moved its focus to prepare Singapore for a post-pandemic future, as indicated by the recently released Budget in February, which included steps to sustain the recovery and combat growing costs.
To help small- and medium-sized enterprises raise productivity, the budget set aside $441 m to scale up its ‘Productivity Solutions Grant’, which will support over 100,000 projects over the next four years. A new ‘Singapore Global Enterprises programme’ was also launched to aid local businesses in areas such as innovation, internationalisation, and partnership with other dealings. The 2022 Budget has also set aside $147 m towards enhancing schemes that build digital capabilities in businesses and workers.
As Singapore’s economy relies heavily on free trade, authorities have also announced the “Singapore Economy 2030 plan” on March 4, with an aim to significantly grow trade volumes by 2030. The plan targets growing Singapore’s exports to at least $1 tn by 2030, from $805 bn in 2020 and doubling offshore trade to $2 tn in the same period.
Calling it a “collective vision for the economy”, the Minister for Trade and Industry Gan Kim Yong said the plan “will put our industries, enterprises, and workers on a firmer footing for long-term, sustainable growth over the next decade.”
Can Singapore sustain its growth momentum?
While Singapore’s economy is on the upswing, inflation fears cast a shadow on growth projections. The city-state is grappling with high inflation in recent months, which “will be a key risk to the growth outlook,” according to the DBS Bank economist.
Singapore’s key consumer price rose by its fastest pace in nearly a decade in January, driven by higher inflation for food, electricity and gas. January core inflation rate rose 2.4% y-o-y (highest since September 2012), while the headline inflation grew by 4%.
On a similar note, 94.4% of respondents in the MAS survey cited a sharper-than-expected rise in inflation, driven primarily by higher energy and food prices, with an expected rise in the pace of monetary policy tightening by major central banks as downside risks to Singapore’s growth outlook. As per the survey, core inflation is predicted to be 2.7% in 2022, in line with the central bank’s prediction of 2-3%, while headline inflation is expected to be 3.6%, somewhat higher than the MAS estimate of 2.5-3.5%.
Concerns over pricing and imported inflation prompted the central bank to tighten its monetary policy in January this year, in order to “ensure medium-term price stability.” Seah expects further tightening action by the central bank in its semi-annual policy meeting in April, “which in turn will have a cooling effect on growth.”
Rising oil prices pose additional risks
Besides inflation worries, the survey respondents view geopolitical tensions due to the Russia-Ukraine conflict and the Covid-19 situation as additional factors that could threaten the nation’s growth outlook. The country imports most of its energy needs, with natural gas accounting for 95% of Singapore’s power generation mix.
The Russia-Ukraine crisis has already resulted in a spike-up in oil prices. As per the Trade and Industry Minister Gan Kim Yong, “the longer-term and indirect impact of the Ukraine conflict on Singapore will be significant.”
Furthermore, the geopolitical concerns are already affecting Singapore’s export-oriented industries such as the manufacturing sector. February released data showed Singapore’s manufacturing slowing for the first time in two years. Purchasing Managers’ Index (PMI) fell to 50.2 in February from 50.6 in January, due to slower growth in new orders, new exports, factory output and employment, noted the Singapore Institute of Purchasing and Materials Management (SIPMM).
