Against a backdrop of relatively supportive global growth and disinflation, Singapore’s growth momentum should strengthen this year, says Monetary Authority of Singapore (MAS) managing director Chia Der Jiun on July 18.
Speaking at the release of the central bank and regulator’s annual report for the financial year ended March 31, Chia says growth across the major sectors of Singapore’s economy is expected to “gradually return” to pre-pandemic norms.
For 2024, GDP growth will come in “closer to its potential rate of 2% to 3%”, according to Chia. “The output gap is expected to close by the end of the year.”
Singapore has made “considerable progress” in the fight against inflation, says Chia, who took on the top job at MAS in Jan 1, succeeding Ravi Menon. “Inflation has come down quite some way from the peak of 5.4% in 1Q2023.”
MAS core inflation, which excludes private transport and accommodation costs, averaged 3.1% y-o-y over April-May, down from 3.3% y-o-y in 1Q2024. “Over the past year, price increases have moderated across a range of goods and services, including food, retail goods and discretionary services, such as restaurant meals,” he adds.
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MAS’s tightening in recent years
MAS began withdrawing policy accommodation in October 2021, “well before” most other central banks, says Chia, as the economy recovered and inflation was picking up while supply chains had not fully recovered from pandemic-related disruptions.
Over 2022, MAS tightened monetary policy four times, which included making an “unprecedented” sequence of three upward re-centrings of the Singapore dollar nominal effective exchange rate (S$NEER) policy band, says Chia.
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The S$NEER appreciated by close to 7% over 2022, helping to lean against surging imported inflation, he adds. Core inflation peaked at 5.4% in 1Q2023, and headline inflation at 7.3% in 3Q2022.
“If MAS had not tightened monetary policy, core inflation would have reached 7% and headline 8%,” says Chia.
MAS kept monetary policy on a restrictive stance over 2023 to secure the disinflation path, notes Chia. “In 2023, even as global inflation declined as supply-side bottlenecks receded and demand moderated, domestic cost pressures were still elevated amid a tight labour market, strong wage growth and continued passing through of previous step-up in costs by businesses to consumers.”
The continued appreciation of the S$NEER restrained aggregate demand in the Singapore economy and dampened domestic price pressures, he adds. “Core inflation is expected to stay on its disinflation path and will ease more significantly in 4Q2024. It is forecast to reach around 2% in 2025, barring further shocks.”
July Monetary Policy Statement
In January, MAS shifted to a quarterly schedule for its monetary policy statements (MPS). According to Chia, this allows MAS to provide its assessment of the economic outlook “in a timelier fashion”.
“I would like to stress that MAS continues to maintain a medium-term orientation to its policy formulation,” he adds.
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MAS will convey its assessment of the near-term outlook for growth and inflation, along with its monetary policy stance, in the July MPS, which willl be issued by the end of this month.
Chia says his team is alert to the risks of global inflation over the medium term. “Structural shifts impacting supply chains, such as geopolitical tensions and rising protectionism, lower labour force growth, as well as climate change and the worldwide transition to net-zero emissions, are likely to result in a more supply-constrained global economy.”
According to Chia, these shifts and supply rigidities could impart upside pressure on inflation compared to norms in the decade before Covid-19.
Artificial Intelligence (AI) could potentially be disinflationary, says Chia, if it relieves supply constraints and increases productivity, but its impact is still uncertain at this point.
“While AI has been offered as a general purpose technology, it hasn't emerged as such,” says Edward Robinson, MAS’s deputy managing director (economic policy) and chief economist. “The potential for it doing so is certainly great and if it does materialise in the decade ahead, I think there will be important impacts on productivity and, therefore, the supply side in the global economy and Singapore as well. That, on its own, can be an important force that augments the supply side capacity of the economy.”
If the structural shifts to supply prevail, global monetary policy is unlikely to go back to the highly accommodative stance pre-Covid-19, says Chia.
“MAS will continue to closely study these global developments, and their implications for Singapore’s inflation and economic growth, with monetary policy responding accordingly to ensure medium-term price stability,” says Chia.
Read more about MAS's annual report for FY2023/24:
- MAS swings back from two years of losses with $3.8 bil net profit in FY2023/24
- MAS announces additional $100 mil funding for FIs pursuing AI, quantum projects
- S'pore's net AUM inflows falls to $193 bil in 2023, but AUM grows to $5.4 tril
- Total debt issued in S’pore grows 10.5% y-o-y to $556 bil in 2023 from multinationals’ financing needs
- Wait time for tax incentive applications to be shortened, banks’ AML rules to be standardised: MAS
Photo: Monetary Authority of Singapore
