Singapore's Economy on Track as Inflation Steadies, Trade Improves -- Update

May 23, 2024 at 02:10 pm IST

By Amanda Lee, Fabiana Negrin Ochoa and Ronnie Harui

SINGAPORE--Singapore's economy looks on track for a strong year, with hopes underpinned by better-than-expected growth, steadying inflation and improving trade.

The city-state's economy, one of the richest in Southeast Asia, picked up in the first quarter of the year as growth in the services sector helped offset weakness in manufacturing.

Gross domestic product expanded 2.7% compared with the same period a year earlier, according to revised data released by the Ministry of Trade & Industry on Thursday. That improved on the fourth quarter's 2.2% expansion.

Inflation also looks to be steadying after a bumpy start to the year as April's consumer price index rose 2.7%, the same as in March. Core inflation also stayed stable, and is expected to keep moderating gradually over the year, the Monetary Authority of Singapore and the MTI said in a joint statement.

Trade data was also a bright spot for the export-reliant island, as the value of Singapore's trade rose after falling for five straight quarters, helped by higher oil prices.

That's helped cement economists' expectations for stronger growth this year after a tepid 2023, when manufacturing contracted and trade tumbled.

Still, risks loom large as the economy is heavily exposed to global events and the fortunes of its key trading partners. Softer demand in Singapore's top markets was reflected in first-quarter data showing that non-oil domestic exports to its all top markets fell, except China and Hong Kong. Drops in shipments to the EU, U.S. and Japan led the declines.

Enterprise Singapore said the result poses some risks to its trade outlook, but the government agency noted that the recovery in electronics demand, driven by consumer devices and artificial-intelligence servers, could provide a cushion.

Electronics will be critical to Singapore's manufacturing upturn, said Chua Han Teng, an economist at DBS. "Electronics alone accounts for almost half of overall factory output and over 9% of GDP," he said.

The continued upturn of the technology industry and recovery of major economies bode well for Singapore, but uncertainty abounds.

The ministry flagged geopolitical tensions from conflicts like the war in the Middle East as a key risk for the Singapore economy. Another is a disruption to the global disinflation process, which could lead to higher-for-longer interest rates.

Many economies are feeling the pinch of high borrowing costs after central banks tightened policy settings to tame a postpandemic surge in inflation. In Asia, the timeline for the start of easing is unclear. Most banks have remained on the sidelines, waiting for clarity on U.S. rate cuts.

While growth in major economies is likely to taper gradually as financial conditions stay tight, MTI said it expects growth to pick up once policy rate cuts start.

Official forecasts for both headline and core inflation were maintained at an average of 2.5% to 3.5% this year, but contained warnings about risks. Global events could lift energy and food prices, as well as shipping costs, the MAS and MIT said.

Though showing signs of steadying, inflation remains above what economists view as the MAS's comfort zone. Sticky prices could mean that the MAS might only consider policy adjustments at its final meeting of this year in October, ING economists said in a note.

The financial hub seemed to have kicked off the year on the right foot, with an uncharacteristic pivot to attracting non-business travelers. A lineup of events in Singapore including the likes of Coldplay and Taylor Swift has given the economy a boost, as has a visa program to draw more tourists from China.

Barnabas Gan, RHB Banking Group's acting group chief economist & head of market research, maintains that Singapore's economy will accelerate in the second half of the year, and tips 2024 growth of 2.5%. That would be toward the upper end of the trade ministry's 1.0% to 3.0% forecast range.

Economists at UOB, DBS and OCBC all see full-year growth of at least 2%.

Write to Amanda Lee at amanda.lee@wsj.com and Fabiana Negrin Ochoa at fabiana.negrinochoa@wsj.com