Singapore should still see growth in the rest of 2024 due to the ongoing upswing in the electronics and trade cycles as well as the easing in global financial conditions, says the Monetary Authority of Singapore (MAS) in its macroeconomic review for October this year.
The review is published twice a year in conjunction with the release of the MAS’s monetary policy statement (MPS).
The statement comes after the Ministry of Trade and Industry (MTI) said that Singapore’s 3Q2024 GDP expanded by 2.1% q-o-q, accelerating from the average of 0.4% in the first half of the year. Based on the MTI’s advanced estimates, Singapore’s economy grew stronger than expected underpinned by a step-up in manufacturing output, particularly in the electronics industry. Activity also picked up in the modern services cluster.
This year, the MAS expects Singapore’s GDP to come in the upper end of its forecast range of 2% to 3%. The negative output gap is expected to close in 2H2024.
At the same time, the global economy is tipped to “expand at a steady pace” as disinflation remains on track.
According to the review, most of Singapore’s key trading partners saw an increase in growth momentum in the second quarter of this year supported by the ongoing recovery in the tech cycle and firmer domestic demand.
See also: Analysts maintain positive outlook on manufacturing sector in 2024 despite slowdown in IP
“Meanwhile, global disinflation has progressed, with services inflation finally easing meaningfully alongside a moderation in labour cost pressures. The post-pandemic supply-demand imbalances having been broadly resolved in key economies,” the review adds.
As such, it sees that total demand should continue to expand underpinned by firm household spending and business investment, with additional support from near-synchronised monetary policy easing by central banks.
“The last mile of disinflation should remain on track, alongside steady growth across most economies. Nevertheless, there is elevated uncertainty around both growth and inflation, stemming from geopolitical risks,” the report reads.
2025 expectations
The Singapore economy has “strengthened decisively” in 3Q2024, underpinned by broadening recovery in the manufacturing sector, increased trading activity in the financial sector and the return of Chinese tourists.
For the remainder of 2024 and leading into 2025, it is expected that growth should continue to be supported by the upswing in the global tech cycle, alongside easing financial conditions.
In 2025, the Singapore economy is expected to expand at close to its potential rate, although the central bank sees “significant uncertainty” around the economic outlook on the back of continuing risks externally.
“A sharp escalation in geopolitical and trade conflicts could exert sizeable drags on global and domestic investment and trade. There is also uncertainty around the pace and impact of global macroeconomic policy easing, and with it, the durability of the electronics upturn,” states the report.
With regards to core inflation, MAS expects core inflation to slow down further for the rest of 2024, reaching around 2% at the end of the year.
In 2025, MAS core inflation and CPI-all items inflation are expected to average 1.5% to 2.5%, a significant decrease from their peaks over the last two years.
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“The disinflationary trend will be anchored by a broadly benign external cost environment and a slower pace of increase in domestic labour costs, the report notes, adding that the transitory effects of the GST increase are likely to fade.
However, upside and downside risks to the inflation outlook remain, arising from growing geopolitical tensions, volatile commodity prices and the impact of global growth outcomes on domestic labour market conditions.
S$NEER unchanged
With the stronger-than-expected near-term growth momentum and slightly negative output gap expected to close before the end of this year, the MAS has kept the prevailing rate of appreciation of the Singapore dollar nominal effective exchange rate (S$NEER) policy band in October.
“All in, MAS assesses that the prevailing rate of appreciation of the policy band is for now consistent with medium-term price stability. The balance of risks in 2025 has tilted towards lower growth, amid heightened global uncertainties,” says the central bank, which also kept its S$NEER policy band unchanged in July.
Asean countries
Following the US-China trade war, there have been instrumental shifts in global trade patterns, particularly between the US and China.
In 1H2024, bilateral trade between US and China fell by 6% y-o-y, while overall trade between US and the rest of the World grew by more than 40% since 2017.
Asean countries have benefitted from the diversion of electronics trade between the US and China, through increased direct investment inflows.
The region can continue to benefit by specialising in different parts of the value chain, with Singapore leveraging its comparative advantage in producing upstream and midstream electronic components and providing supporting intermediation services to trade.
“Besides trade-related services such as transport and storage, Singapore has a comparative advantage in financial and professional services, which could complement the region’s manufacturing-driven export profile,” the report notes.
