By Fabiana Negrin Ochoa
Singapore's economy seems on track to improve from last year as key sectors strengthen and cost pressures stay in check, according to the central bank's latest annual report.
"Against a backdrop of relatively supportive global growth and disinflation, Singapore's growth momentum should strengthen this year," Chia Der Jiun, managing director at the Monetary Authority of Singapore, said in prepared remarks.
The MAS expects trade-related sectors to get a boost from the recovery of the global electronics industry, with modern services--which include financial, infocomm technology and media--improving from 2023 thanks to the expected peaking of global policy interest rates, the MAS said in its report on Thursday.
The growth in travel and domestic-oriented segments of the economy will moderate but stay above trend, the MAS said.
Singapore's economy lost some steam in the first quarter of the year after gathering pace in the latter half of last year, but it is expected to grow 1%-3% in 2024, up from 1.1% in 2023, the monetary authority said.
Recent economic data suggest some bumps in the road ahead for the city-state's economy but still point to a gradual, if choppy, recovery.
Advance estimates earlier this month put second-quarter growth at 2.9% from a year earlier, better than markets had expected but a touch lower than the first quarter's 3.0% expansion. A bright spot was manufacturing, which contributes a big chunk to gross domestic product and swung to growth in the second quarter from a contraction in the first three months of the year.
That has buoyed expectations among economists about the recovery, with many expecting spillovers from the artificial-intelligence and semiconductor boom to benefit Singapore.
Though recent trade figures have been volatile, many analysts expect a gradual exports recovery this year from 2023's weak performance. The city-state's electronics exports remain on an uptrend, in line with the global tech cycle, Nomura economists Euben Paracuelles and Charnon Boonnuch said in a note.
Nomura sees scope for the Ministry of Trade and Industry to raise its full-year GDP growth forecast range next month. The second-quarter flash estimates imply GDP growth tracking at 3.0% on the year in the first six months of 2024, which is already at the upper end of the MTI's growth forecast of 1%-3%, the economists said.
In its report, the MAS said core inflation will stay sticky for a few more months as services prices are adjusted to catch up to earlier cost increases. But as imported and domestic cost pressures stay in check and cost pass-through progresses, core inflation should slow from the fourth quarter before falling further in 2025 as the effects of higher goods-and-services and carbon taxes fade.
Excluding GST and carbon tax, underlying inflation has been on a broad downward trajectory, the MAS said.
With GDP growth to strengthen and inflation to remain contained--barring any shocks--the prevailing rate of appreciation of the MAS's policy band is needed "to keep a restraining effect on imported inflation and domestic cost pressures," the central bank said.
The MAS kept the Singapore dollar nominal effective exchange rate policy band on an appreciation path in January and April.
Unlike most central banks, the MAS uses currency as a policy tool to damp inflationary expectations and support growth as trade flows dwarf the island nation's domestic activity.
The MAS continues to project core and headline inflation to average 2.5% to 3.5%. Stripping out the impact of GST hikes lowers the forecasts to 1.5% to 2.5%.
The MAS remains alert to inflation risks, including a stronger-than-expected domestic labor market that could fuel wage growth, the report said.
Another potential headwind comes from Singapore's major trading partners, where disinflation has slowed.
"The balance of risks appears to be tilted towards persistent inflation," the MAS said.
Geopolitical or extreme weather could also disrupt supply, while slower monetary easing in advanced economies "could trigger latent financial vulnerabilities and consequently weigh on growth," it said.
Overall, the MAS expects global growth to remain steady in 2024.
"The benign growth backdrop will add momentum to the nascent upturn in the global electronics cycle, supporting Emerging Market Asia economies," the MAS said.
The MAS will give its assessment of the near-term outlook for growth and inflation in the July monetary policy statement.
Write to Fabiana Negrin Ochoa at fabiana.negrinochoa@wsj.com
(END) Dow Jones Newswires
07-18-24 0114ET
