Singapore, the city-state that is closely linked to the global economy, has given some hope to the economic optimists with its latest central bank report. The Monetary Authority of Singapore (MAS) said that the risk of a sharp downturn has receded compared to earlier in the year, and that growth is picking up in the domestic economy.
MAS Keeps Policy Steady and Upgrades Growth Forecast
The MAS, which uses the exchange rate as its main policy tool, kept its policy stance unchanged in its six-monthly review on Friday. It maintained a modest and gradual appreciation path of the Singapore dollar nominal effective exchange rate policy band, with no change to the slope, width and centre.
The MAS also raised its growth forecast for 2023, saying that the economy is expected to expand by 2.5% to 3.5%, up from the previous range of 1% to 3%. This is in line with the Ministry of Trade and Industry’s (MTI) estimate of 2.5% to 3.5% growth for this year.
The MAS said that the global economy has shown signs of stabilisation, despite the ongoing trade tensions and geopolitical risks. It noted that the US and China have made some progress in their trade talks, and that the major central banks have eased their monetary policies to support growth.
The MAS also said that the domestic economy has recovered from the contraction in the first quarter, driven by a rebound in the manufacturing sector and a sustained expansion in the services sector. It added that core inflation, which excludes the costs of accommodation and private road transport, has eased to 3.4% in August, down from a peak of 5.5% in January.
Singapore Benefits from Electronics Cycle and Regional Trade
One of the key factors that has boosted Singapore’s economic performance is the improvement in the electronics cycle, which is vital for Southeast Asia. The MAS said that global semiconductor sales have increased since June, after declining for seven consecutive months. It also said that semiconductor prices have recovered from their troughs in May.
The Bank of Korea (BOK) also expressed optimism about the electronics cycle, saying that recovering semiconductor prices are “very good news”. Samsung Electronics Co., the world’s largest chipmaker, reported a smaller-than-expected decline in profit in the third quarter, thanks to a recovery in its memory chip business.
Another factor that has supported Singapore’s economy is the resilience of regional trade, despite the slowdown in China and the global trade tensions. The MAS said that intra-regional trade flows have remained robust, especially in sectors such as information and communications technology (ICT), chemicals and pharmaceuticals.
The MAS also said that Singapore’s non-oil domestic exports (NODX) have increased by 6% year-on-year in August, after falling for nine consecutive months. It attributed this to a surge in pharmaceutical exports, which offset the decline in electronics exports.
Singapore Remains Cautious Amid Uncertainties
While Singapore has given some succour to the economic optimists, it has also remained cautious about the uncertainties and challenges ahead. The MAS said that there are still downside risks to the global outlook, such as a further escalation of trade tensions, a disorderly Brexit, or a wider conflict in the Middle East.
The MAS also said that China’s growth momentum has weakened further, as it faces structural challenges such as high debt levels and an ageing population. It said that China’s slowdown has weighed on Asia’s growth prospects, especially for economies that are more dependent on China’s demand.
The MAS also said that inflation pressures are likely to remain subdued in Singapore, as external sources of inflation are low and domestic cost pressures are moderate. It said that core inflation is expected to average between 2% and 3% for 2023 as a whole, while headline inflation, which includes all items, is expected to be between 0.5% and 1.5%.
The MAS also said that it will continue to monitor economic developments and data closely, and adjust its policy stance as appropriate. It said that its policy stance remains consistent with a positive but modest rate of inflation over the medium term.
