Singapore’s central bank expects weaker growth and lower inflation in 2023

Singapore’s central bank said that the country’s gross domestic product is expected to “decline significantly” this year, and that growth prospects this year are “faint”.

This comes as the economy grew 0.1% in the first quarter compared to a year ago, according to the Ministry of Commerce and Industry Advance GDP estimates. However, compared to the previous quarter, GDP shrank by 0.7%, which is the first contraction since the second quarter of 2022.

Maas said Global economic activity was “somewhat more resilient than expected” in the first quarter of 2023, with lower global energy prices, strong consumer demand in advanced economies, and the lifting of pandemic restrictions in China.

However, it expects that tighter financial conditions globally will increase the burden on global investment and manufacturing. MAS also sees increased reopening demand in most regional economies waning throughout the year.

While China’s reopening is relatively recent, Singapore’s central bank expects the mainland’s recovery to be largely consumption-driven and geared towards the domestic services market.

The association said growth in Singapore’s main trading partners will be slower in 2023, which is lower than the pace recorded in the past two years.

Singapore’s trade-related cluster is expected to contract further, and growth is expected to moderate domestically as higher consumer prices and interest rates constrain spending. MAS forecasts GDP growth for 2023 between 0.5% and 2.5%, down from 3.6% growth in 2022.

Singapore’s manufacturing sector makes up the largest part of the GDP 21.6% of nominal GDP in 2022. The sector shrank by 6% in the first quarter of last year, according to a statement from the Ministry of Commerce and Industry, which is sharper than the 2.6% year-on-year contraction recorded in the previous quarter.

On a quarterly basis, the sector contracted by 5.2% in the first quarter, which is a reversal of an expansion of 1% in the fourth quarter of 2022. The ministry indicated that there was a contraction in production in all manufacturing groups, except for transportation. engineering.

On Friday, MAS also announced that it will maintain its monetary policy, halting a series of five consecutive tightening decisions since October 2021.

The central bank said that while inflation remains high, its tightening moves “softened the momentum of price increases.”

“The effects of MIT’s monetary policy tightening are still working through the economy and should add to inflationary weakness,” he added.

As such, it will maintain the prevailing appreciation rate of the exchange rate policy band, known as the nominal effective exchange rate of the Singapore dollar, and there will be no change in its supply or the level at which it is concentrated.

Singapore conducts monetary policy through exchange rate settings, not interest rates. On Friday, the Singapore dollar traded at 1.3255 against the US dollar.

MAS expects inflation to remain elevated over the next few months, due to backlogs of business costs feeding into consumer prices.

Singapore’s core inflation rate was 6.3% in February, while MAS core inflation – which excludes accommodation and private transport costs – held steady at a 14-year high of 5.5%.

However, inflation is expected to slow “more visibly” in the second half of this year and end the year significantly lower. MAS expects core inflation to be around 2.5% by the end of 2023.

For the full year, MAS core inflation is expected to range from 3.5% to 4.5%, with headline inflation expected between 5.5% and 6.5%.