Singapore’s Growth Likely to Be Closer to Potential Rate Next Year, MAS Says

Manufacturing should undergo a cautious recovery, along with nascent signs of stabilization in the global electronics industry, while financial services growth seems to have bottomed out amid plateauing interest rates, the central bank said in its semiannual macroeconomic review. However, growth in travel-related and domestic-oriented sectors is likely to normalize as the post-reopening boost abates, the MAS added.

For 2024, Singapore’s economic growth is expected to improve gradually in the second half of the year and come in closer to its potential rate for the year as a whole, the MAS said.

Singapore’s imported inflation is expected to stay modest as prices for global food commodities and manufactured goods continue to fall, the MAS said. The easing in labor-market tightness should slow the pace of unit labor cost increases and damp services inflation, the central bank added.

Core inflation is projected to average around 4% this year, and should moderate to average between 2.5%-3.5% next year, the MAS said. Headline inflation is forecast to be around 5% this year, and should moderate to average between 3.0%-4.0% next year, the central bank added.

However, a sustained appreciation of the Singapore dollar nominal effective exchange rate policy band is necessary to damp imported inflation and curb domestic cost pressures, the MAS said. The current appreciating path of the SGD NEER policy band is assessed to be sufficiently tight, as the economy’s output gap is likely to stay negative for a second straight year amid a broad disinflationary trend in costs and prices, it added.

The MAS’s monetary policy is centered on Singapore’s exchange rate, which it considers an effective tool for maintaining price stability in the small and open economy.

Write to Ronnie Harui at [email protected]