Faster economic growth, lower inflation to come in 2024, economists say in MAS survey

SINGAPORE — The skies are brightening, at least for the economy: Singapore's economy should grow faster next year than this year, while inflation will likely ease this year and drop further in 2024, economists said.  

This was the sum of the forecasts in a quarterly survey of private sector economists by the Monetary Authority of Singapore (MAS), published on Wednesday (March 8). 

Economists who spoke to TODAY said that their forecasts for the economic and inflation outlook were more optimistic during the period of this survey than when it was last conducted in December, due in part to China's economic reopening proving to be successful for now. 

Overall, the economists in the survey predicted that Singapore's economy will expand by 1.9 per cent this year, down from the 3.8 per cent expansion in 2022. However, it is expected to pick up pace again next year and is projected to grow by 2.5 per cent then. 

Inflation, which stood at 6.1 per cent last year, will likely drop to 5 per cent this year and fall further to 3.1 per cent in 2024. 

Core inflation, which strips out private road transport and accommodation costs, had averaged 4.1 per cent in 2022. It is forecast to remain at 4.1 per cent in 2023 before declining to 2.9 per cent next year, the economists said.

As for the labour market, they expect the unemployment rate to be 2.2 per cent at year-end. Resident unemployment rate in December last year was at 2.8 per cent. 

The survey was sent to 26 economists and analysts who monitor the Singapore economy and 21 responded, MAS said.

WHY IT MATTERS

The rosier outlook offers some breathing room in what has been a difficult economic period marked by record high inflation and slowing growth. 

Coming out of the Covid-19 pandemic, Singapore's economy was almost immediately hit by by the effects of the Russian invasion of Ukraine, which has led to higher commodity and food prices around the world. 

At the same time, a global slowdown in consumer demand has slammed many multi-nationals especially in the technology sector, which have resulted in a series of high-profile retrenchments. 

In December last year, Singapore's Ministry of Manpower reported that more workers were laid off in the third quarter of last year compared to the previous three months, and fewer retrenched workers found another job within six months.

WHY THE OPTIMISM FOR ECONOMIC GROWTH 

The economists surveyed by MAS said that more robust growth in China, underpinned by its economic reopening, could give a boost to Singapore's economy.

Elaborating, some economists interviewed by TODAY said that China's reopening was a key factor behind why forecasts in March have been rosier than those made in December.

In December, economic growth for this year was tipped to come in at 1.8 per cent, but in the March forecasts, it is slightly higher at 1.9 per cent. 

OCBC bank's chief economist Selena Ling, one of the 21 economists who did the MAS survey, said that China's reopening provides "tentative signs that the post-exit Covid wave may have peaked in early January and is subsiding".

At the same time, China's domestic consumption and tourism are picking up speed, meaning that Singapore could potentially export more goods there and also see a higher influx of Chinese tourists.

Agreeing, economist Song Seng Wun from CIMB bank, who was not among the economists MAS surveyed, said that other factors — such as the probable avoidance of recessions in key trading partners that some had feared — also helped to brighten the forecast. 

"The expectation of economies in Europe and the United States averting recession has increased because of the still-resilient labour market," he added. 

For instance, Europe's labour market is observing low unemployment rates, while the US unemployment rate is at a five-decade low. 

"It looks like there is greater confidence for an export-oriented economy with the risk of recession in Europe and US diminishing, and China reopening," Mr Song said.

Despite the more optimistic outlook for the economy, economists in the MAS survey warned that there were risks to their forecast.

An escalation in geopolitical tensions and continued inflationary pressures could negatively affect the economy and drag down growth.

Singapore may also suffer spillover effects from a slowdown in growth among its trade partners, they added.

Agreeing, Mr Song said that downside risks remain given that the war in Ukraine is still unresolved more than a year on, while US-China relations have also not improved. 

INFLATIONARY PRESSURE EXPECTED TO EASE

Inflationary pressures are also expected to ease with the global economy pivoting to a "soft landing" scenario, Ms Ling from OCBC said.

This "soft landing" scenario refers to a cyclical slowdown in economic growth that avoids recession.

This was partially achieved through central banks tightening their monetary policies to slow demand in the past 12 to 18 months, such that the economy does not overheat and experience sustained high inflation, yet also avoids a significant downturn. 

"The cumulative effect of monetary policy tightening over the past 12 to 18 months should dampen inflation going forward," Ms Ling said. 

She added that although oil and food prices remain high, they are not increasing at the rates seen last year when the Ukraine-Russia conflict erupted, and thus will likely be lower in 2023 compared to the "high base" in 2022.

However, Mr Song from CIMB said that the reopening of the Chinese market, while a stimulus for growth, also comes with the risk of increasing inflation. 

"The reopening in China could add on to demand pressure, and therefore prices."

TECH SECTOR MAY SEE RESURGENCE 

Economists in the MAS survey also said that a faster recovery in the technology sector may boost Singapore's economy even more.

The tech sector has seen a slowdown in growth, but Ms Ling said that she expects to see stabilisation and gradual improvement in the sector in the second half of the year. 

This is to be expected, she added, because the tech sector often slows down when interest rates increase. 

This is because the sector is often run on investments, so higher interest rates will make investors move to other lower-risk stock or bond options. 

Investors may return to put money in tech stocks at a time when there are paused interest rate hikes or easing monetary policies as the global economy stabilises, she added. 

Agreeing, Mr Song said that China's reopening may also boost demand to consumer tech products, further propping up the sector.