Singapore’s growth trajectory remains intact

THE Singapore economy is on track for faster growth in 2024, aided by resilient global demand for its exports and abovetrend growth in tourism-related industries, according to the central bank.

The Monetary Authority of Singapore (MAS) maintains its estimate of 1% to 3% gross domestic product (GDP) growth in 2024, made in November, after the 1.1% expansion in 2023. The main clusters of the economy are converging towards their pre-pandemic growth rates, it says.

“Growth in the trade-related and modern services clusters are expected to improve from last year, while that in the travel-related and domestic-oriented clusters will continue to moderate but stay above trend,” it says in its latest twice-yearly macroeconomic review.

The trade-related sector includes manufacturing and wholesale trade, while the modern services cluster is made up of financial, professional, information technology and media companies.

“The economy will be propelled by the ongoing recovery in the global electronics industry and the expected peaking of interest rates worldwide,” says MAS.

Its optimism over Singapore’s outlook follows the International Monetary Fund’s April 16 upgrade of its 2024 global growth forecast to 3.2%, from the 3.1 % projection in January 2024 and 2.9% in October 2023.

MAS estimates that the global economy will expand by 3% in 2024, slightly lower than the 3.3% recorded in 2023, as the impact of past interest rate hikes and less supportive fiscal policy in most economies continues to exert a restraining effect on growth.

“Still, the global economy is likely to emerge unscathed in 2024 from the tightening of financial conditions, with economic growth set to be become gradually more broad-based over the year,” MAS says, adding that global growth is set to improve to 3.3% in 2025 as central banks start to cut interest rates.

The World Trade Organisation forecasts global merchandise trade is to expand by 3.3% in 2024, up from 0.8% in 2023.

In tandem, Enterprise Singapore expects the Republic’s non-oil domestic exports to increase by 4% to 6% in 2024 – a turnaround from the 13.1% contraction in 2023.

While manufacturing activity slowed in the first quarter of 2024, MAS said the sector should continue to benefit from the ongoing global recovery in demand for electronic goods, especially for memory chips – a type of semiconductor that stores data.

Meanwhile, major central banks are unlikely to further tighten their monetary policies after having raised interest rates aggressively in the past two years to fight inflation. The benign policy-rate outlook should bolster financial sector activity here, MAS says.

Separate data released later on April 26 showed Singapore’s manufacturing output shrank 9.2% year on year in March.

For the first quarter of 2024, manufacturing contracted 1.8% from a year ago, reversing from the 1.8% expansion in the previous quarter.

MAS in its briefing says the pullback in electronics output was likely because of some short-term fluctuations in output of the crucial semiconductor segment as the underlying improvement in the global tech cycle remains broadly intact.

Short-term fluctuations

The pullback in electronics output is likely because of some short-term fluctuations in output of the crucial semiconductor segment as the underlying improvement in the global tech cycle remains broadly intact.

Nonetheless, Singapore’s short-term prospects will be underpinned by the upturn in the global tech cycle, and the expected start of the reversal of global monetary policy tightening, said MAS.

The modern services cluster also contracted in the January to March period, led by weaker performances across finance and insurance, professional services, and information and communications.

Growth in the tourism-related industries should taper from the first-quarter boost from an unprecedented line-up of largescale concerts.

Surge in tourism

Singapore experienced a surge in tourism activity as concerts held by internationally renowned artists Coldplay in January and Taylor Swift in March drew more than half the audience from abroad.

International visitor arrivals rose by 26% in the first quarter from the previous three months and were up a significant 50% when compared to the same period 2023.

Private sector analysts have estimated the tourism receipts generated by the concerts in Singapore ranged from S$350mil to S$450mil, depending on the assumptions made, such as the proportion of foreign visitors among the concertgoers and the length of stay in Singapore.

But the concert bonanza is unlikely to be sustained through the rest of 2024.

Still, tourism-related growth will be underpinned by upcoming events of a smaller scale, as well as the continued recovery of Chinese tourists following the removal of remaining travel frictions.

The global economy has been surprisingly resilient, despite significant central bank interest rate hikes to restore price stability.

However, the pace of disinflation in Singapore’s major trading partners, especially the advanced economies, has slowed after significant progress last year.

MAS warns that a delayed and slower pace of monetary easing in advanced economies could trigger latent financial vulnerabilities and consequently weigh on growth.

Additionally, geopolitical risks or extreme weather events could result in supply-driven price hikes of goods and commodities.

Core inflation in Singapore is expected to stay around 3% in the near term, before “falling more discernibly” in the fourth quarter of 2024 and into 2025, the central bank says.

“Consumer prices are likely to continue catching up with the higher cost levels in some goods and services for a while,” MAS says. This includes the step-up in water prices in April.

Hence, in the near term, core inflation – which excludes private accommodation and private transport costs – will remain around current elevated levels.

However, as the pass-through of accumulated costs to consumer prices progresses through the year, core inflation is projected to ease more meaningfully, MAS says in its macroeconomic review.

“The economy will be propelled by the ongoing recovery in the global electronics industry and the expected peaking of interest rates.”

The Monetary Authority of Singapore

Inflation may be stronger

But it cautioned that inflation could also turn out to be stronger than anticipated due to global shocks to supply and demand.

For 2024 as a whole, MAS maintains its forecast for core inflation and headline inflation to average at 2.5% to 3.5%.

Excluding the transitory effects of the increases in goods and services tax (GST), core and headline inflation are expected to come in at 1.5% to 2.5%.

MAS noted that the GST hike to 9% has likely been fully passed through to most consumer prices as at March.

While some residual pass-through remains due to some retailers’ choice to temporarily absorb the GST increase until later in the year, it is unlikely to raise inflation significantly in the upcoming months, it says. — The Straits Times/ann