Singapore economy to slow further in 2023 amid global challenges: MAS

The Singapore economy is projected to slow further at a “below-trend pace” in 2023 amid growing challenges in the external environment, said the Monetary Authority of Singapore (MAS) on Thursday (Oct 27).

With that, overall labour demand “should soften somewhat” alongside a moderation in wage growth, the central bank added in its latest half-yearly macroeconomic review.

Advance estimates showed that the Singapore economy grew at 4.4 per cent on a year-on-year basis in the third quarter, just below the revised figure of 4.5 per cent in the previous three months. Growth was supported in part by industries which continued to benefit from the reopening of borders.

But moving forward, the significant tightening of global financial conditions and continued COVID-19 curbs in some countries are expected to weigh on growth in Singapore’s major trading partners.

This means that the country’s trade-related sector will continue to see subdued growth in the quarters ahead, the MAS wrote in its report.

“Dampened global and regional trade flows will adversely affect activity in Singapore’s manufacturing, wholesale, water transport and storage sectors, even as global supply frictions continue to ease,” it said.

Specifically, the global electronics industry, which enjoyed a strong post-pandemic demand surge until early this year, has seen its outlook deteriorate “rapidly” in recent months. Global chip sales contracted 3 per cent year-on-year between July to August, leading the industry into a “consolidation phase”. 

For Singapore, end demand for electronics products has pulled back in the country’s top two markets –China and the United States – amid high inflation, tighter financial conditions and consumers pivoting to spending on services. Growth in investment demand for technology equipment in the US also “slowed considerably” since its peak last year, it said.

MAS added that a sharper decline in final demand moving forward “could presage an inventory correction of end-products, which would exacerbate the fall-off in sales of intermediate semiconductor inputs, and in turn worsen the oversupply of chips”.

Slowing external demand from heightened global inflation and tighter financial conditions will also continue to dent growth prospects in the financial sector.

In the near term, the outlook for the sentiment-sensitive segments within this sector – such as the fund management industry – is expected to be bearish, alongside further tightening moves by central banks globally, according to the report.

It is also a less rosy prospect for the travel and consumer-facing sectors, which should continue to recover next year, albeit with slower momentum as consumer sentiment could take a hit from inflation and an uncertain economic environment. In addition, unfulfilled pent-up consumption demand is likely to go towards overseas travel, rather than domestic spending.

Likewise for construction, labour shortages and elevated costs of construction materials will weigh on the outlook even as activity continues to pick up in 2023.

“Overall, GDP growth is likely to stay muted in the coming quarters,” MAS said, reiterating the official growth forecast for 2022 at a range of 3 to 4 per cent.

“Amid weaker external demand conditions, the economy is projected to slow further to a below-trend pace in 2023, dragged down by the trade-related cluster.”

Source: CNA