Sharper rise in inflation, geopolitical tensions are downside risks to Singapore economy: MAS survey

SINGAPORE: A sharper-than-expected rise in inflation on the back of higher energy and food prices, alongside a faster tightening of monetary policy by major central banks, is one of the top downside risks ahead for the Singapore economy, according to a quarterly survey released on Wednesday (Mar 9).

About 40 per cent of the 23 private-sector economists and analysts polled by the Monetary Authority of Singapore (MAS) identified inflation and a faster pace of monetary tightening as the biggest threat to growth.

A similar number of respondents also cited escalating geopolitical tensions associated with Russia’s invasion of Ukraine as a top risk for Singapore’s economic outlook.

Economists were also concerned about the possibility of a deterioration in the COVID-19 situation and the retightening of public health measures, although to a lesser degree.

On the other hand, the reopening of international borders was most frequently cited as a factor that will drive economic growth, followed by a stronger-than-expected expansion in manufacturing output and more robust growth in China.

Overall, economy watchers are expecting the Singapore economy to grow by 4 per cent this year – an estimate that is unchanged from the survey three months ago and in line with the official forecast of 3 to 5 per cent growth.

For the first quarter, the economy could see a growth of 3.7 per cent on a year-on-year basis.

Manufacturing, which makes up about one-fifth of Singapore’s economy, is set to remain a key bright spot for the year ahead. Economists expect the sector to grow 4.1 per cent, higher than the forecast of 3.3 per cent three months ago.

The outlook also brightened for the wholesale and retail trade at 3.7 per cent, a small upgrade from the 3.2 per cent in the previous survey; as well as for non-oil domestic exports, seen to rise 7.8 per cent this year compared with the last estimate of 4.8 per cent. 

The growth forecast for the finance and insurance sector remained unchanged at 4.1 per cent.

The battered construction sector remains on track for expansion this year, although its growth outlook has been trimmed to 9 per cent from 15.8 per cent previously.

Expectations for private consumption is also down to 4.5 per cent from 4.7 per cent, while the accommodation and food services sector is seen rising 9.1 per cent, down marginally from the last 9.6 per cent forecast. 

Economists are expecting headline inflation to reach 3.6 per cent this year, up from an earlier prediction of 2.1 per cent.

Core inflation, which excludes accommodation and private road transport costs, is set to hit 2.7 per cent, also higher from the 1.8 per cent estimate in the December survey.

The pick-up in inflation has thus far spurred MAS to tighten monetary policy in an off-cycle move in January.

But inflation is expected to ease in 2023, with economists forecasting both headline and core inflation to be at 2.4 per cent next year.

As for the labour market, economy watchers polled by the central bank see the unemployment rate at 2.2 per cent at year-end, unchanged from the previous survey