Singapore’s economy expanded by 0.7% year-on-year in the third quarter of 2023, beating market expectations and accelerating from the 0.5% growth in the previous quarter. The Monetary Authority of Singapore (MAS) announced on Friday that it will keep its exchange rate-based monetary policy unchanged, as it expects the economy to improve gradually over 2024.
GDP growth driven by manufacturing and services sectors
According to the advance estimates released by the Ministry of Trade and Industry (MTI), the gross domestic product (GDP) growth in the third quarter was mainly supported by the manufacturing and services sectors, which grew by 3.5% and 1.4% respectively. The manufacturing sector was boosted by the output of electronics, biomedical engineering and precision engineering clusters, while the services sector benefited from the expansion of finance and insurance, information and communications, and business services activities.
However, the construction sector contracted by 3.6%, extending its decline from the previous quarter. The MTI attributed this to the weakness in both public and private sector construction works, as well as the disruptions caused by the COVID-19 pandemic.
On a quarter-on-quarter seasonally-adjusted basis, the economy grew by 1%, reversing from the 0.1% contraction in the second quarter.
MAS keeps policy band unchanged amid inflation and growth uncertainties
The MAS, which manages monetary policy by letting the Singapore dollar rise or fall against a basket of currencies within an undisclosed band, said it will maintain the current rate of appreciation of its policy band. There are no changes to the width of the band and the level at which it is centred.
The MAS said that this policy stance is “sufficiently tight” to curb domestic cost pressures and dampen imported inflation, while ensuring medium-term price stability. It noted that core inflation, which excludes the costs of accommodation and private road transport, has slowed and is projected to decline over 2024.
The MAS also said that it expects the economy to improve gradually over 2024, but warned that the recovery could be weaker than expected due to an uncertain global economic outlook. It cited the risks of a prolonged COVID-19 pandemic, trade tensions, geopolitical uncertainties and financial market volatility.
The MAS added that it will monitor global and domestic economic developments closely and adjust its policy as appropriate.
Analysts expect MAS to remain on hold for now
Most analysts had expected the MAS to keep its policy unchanged in this review, given the mixed signals from the economy and inflation. They also expect the central bank to maintain its current stance for the foreseeable future, unless there are significant changes in the economic conditions.
Mr Irvin Seah, senior economist at DBS Bank, said that the MAS is likely to adopt a “wait-and-see” approach for now, as it assesses the impact of its previous tightening moves and the evolving global situation.
He added that while the GDP growth in the third quarter was better than expected, it was still below potential and uneven across sectors. He also said that inflation remains subdued and within the MAS’s forecast range.
Mr Seah said that he expects the economy to grow by 1.5% for the whole year of 2023, and by 2.5% in 2024. He also expects core inflation to average 1.2% in 2023, and 1.5% in 2024.
Mr Selena Ling, head of treasury research and strategy at OCBC Bank, said that the MAS is likely to stay on hold until there is more clarity on the global and domestic economic outlook.
She said that while there are some positive signs of recovery in some sectors, there are also downside risks from external factors such as trade disputes, Brexit and geopolitical tensions.
She added that inflation remains benign and within expectations, but there could be some upward pressures from higher food prices, wages and healthcare costs.
Ms Ling said that she expects the economy to grow by 1.6% in 2023, and by 2.8% in 2024. She also expects core inflation to average 1.3% in 2023, and 1.6% in 2024.
